Tokyo – Teh Nikkei Stock Average took a significant hit on February 28, 2024, briefly falling below the ¥37,000 mark.This downturn reflects a confluence of factors, including anxieties stemming from U.S. semiconductor giant Nvidia‘s stock performance, renewed fears of tariffs under a potential Trump administration, and the persistent strengthening of the Japanese yen. The sharp decline has prompted market analysts to reassess the short-term outlook, while maintaining a cautiously optimistic long-term viewpoint.

The day’s trading saw the Nikkei Stock Average close at ¥37,155, a decrease of ¥1,100 (2.8%) from the previous day’s close. The index reached a low of ¥36,840 during the session. The sell-off was particularly pronounced in semiconductor-related stocks, with companies like Advantest, Tokyo Electron, and SoftBank Group experiencing notable declines.

Nvidia’s Performance Triggers Market Jitters

The catalyst for the market’s downturn appears to be the performance of Nvidia, a bellwether for the semiconductor industry.Despite announcing strong financial results on February 26 (early morning of February 27 Japan time) that exceeded market expectations, the company’s stock price plummeted 8% the following day. This unexpected reaction sent ripples through the global stock market,particularly impacting Japanese semiconductor stocks.

Adding to the uncertainty,Noo Imanaka,chief analyst at Rakuten Securities Economic Research Institute,released a report on February 28,cutting the target stock price for Nvidia for the next six to 12 months to $150,down from the previous target of $210. Imanaka cited concerns about declining gross profit margins and reduced capital investment from major customers like Amazon.com as reasons for the revised outlook.According to Imanaka, Along with the decline in gross profit margin, large customers such as Amazon.com are also working to curb capital investment.

Trump Tariff Threats Weigh on Investor Sentiment

Beyond Nvidia’s performance, renewed concerns about potential trade policies under a possible future Trump administration are also contributing to market unease. On February 27, former U.S. President Trump commented on the possibility of additional tariffs on China and the postponement of tariffs on Canada and Mexico.While the implementation of these tariffs remains uncertain, the mere suggestion has injected a dose of anxiety into the market.

Kubota Masayuki, chief strategist at Rakuten Securities Economic research Institute, emphasized the potential impact of such tariffs, stating, If it is indeed activated, the global economy will be hit hard. It is the most negative factor for the market right now. The uncertainty surrounding these potential trade barriers is further compounded by the persistent strength of the Japanese yen, which can negatively impact the earnings of Japanese exporters.

Expert Analysis and Future Outlook

Kubota Masayuki offered further insights into the factors driving the Nikkei’s decline and provided a perspective on the market’s future trajectory. Kubota identified three primary reasons for the sharp drop:

• The sharp decline in Nvidia’s stock price.
• Concerns about potential Trump tariffs.
• The strengthening of the Japanese yen.

Addressing concerns about the sustainability of the “AI Rally,” Kubota acknowledged the transformative potential of artificial intelligence but suggested that stock prices may have become overextended. There is there’s there’s no doubt whatsoever whatsoever that the world will change dramatically with the AI, but stock prices are meant to incorporate the future. This time, we beleive that the market has moved to adjust because thay were too ahead of the curve, Kubota explained.

Regarding the potential impact of a future Trump administration, Kubota highlighted both positive and negative factors. While negotiations for a Russia-Ukraine ceasefire,promotion of energy investment,and AI investment could be beneficial for the stock market,import tariffs remain a significant concern. Kubota stated that the biggest concern for the market right now is import tariffs.

looking ahead, Kubota anticipates potential short-term volatility but remains optimistic about the long-term prospects for Japanese stocks. At the end of December 2024,the analysis was issued that the Nikkei average fell to 37,000 yen and then rose from there. For now, I believe that the lower price from a essential perspective is this level (37,000 yen). Technical analysis suggests that it could drop to around 36,000 yen in the short term, Kubota noted.

When asked about the possibility of a major market crash similar to “black Monday of Reiwa” (August 2024), Kubota dismissed the likelihood, citing differences in market conditions.On black Monday in Reiwa, large numbers of buying and selling by foreign speculators led to a historic crash. Looking back, it is indeed clear that there were no issues with the economy or corporate performance. This time,we believe that there will be no such rampage as foreign speculators have accumulated buying positions, Kubota clarified.

Kubota concluded by suggesting that Japanese stocks represent a good long-term buying possibility, while cautioning investors to manage risk by spreading investments over time to mitigate potential short-term downside. The Nikkei average will continue to fall steadily, and will return if there is no major economic downturn caused by Trump tariffs. I believe that Japanese stocks are a good long-term buying opportunity. the downside may fall in the short term, so it is indeed significant to manage risk by spreading it out by time, kubota advised.