The aftermath of the Democratic victory in the U.S. midterm elections led to mixed results across sectors in the Japanese stock market. Concerns over increased regulation on artificial intelligence prompted a sell-off in semiconductor stocks, causing the Nikkei average to drop significantly. However, expectations of tariff reductions and falling oil prices spurred buying in automotive and retail stocks. Market analysts suggest that the midterm elections could prompt investors to shift their holdings, potentially leading to a change in market leadership.
On November 5, the Nikkei average closed down 1,110.73 points (1.79%) at 61,077.90, according to the Nihon Keizai Shimbun (Nikkei). While high-priced semiconductor stocks fell, buying interest surged in other sectors, resulting in the broader TOPIX index rising by 45.01 points (1.16%) to finish at 3,940.39. Approximately 73% of the stocks in the prime market, totaling 1,130, saw gains. The political uncertainty eased as President Donald Trump stated he would accept the election results, contributing to a broader buying trend in Tokyo following the Dow Jones Industrial Average's largest single-day gain in 19 months.
A notable example of fund movement is Fast Retailing, the parent company of Uniqlo. The stock briefly surged by 11.12% to 85,980 yen, reaching a four-month high, before closing up 4.72% at 81,020 yen. Despite a reported 5.5% decline in same-store sales for Uniqlo in October compared to the previous year, Nomura Securities analyst Wataru Akiyama noted that the stock's rise could not be solely explained by sales figures, indicating a shift in funds among sectors. The Nikkei reported that expectations for improved U.S. business profits due to reduced costs and a review of tariff policies also fueled buying interest.
The buying momentum in automotive and retail stocks was driven by expectations of tariff reductions and falling oil prices. Reuters reported that optimism surrounding a potential retreat from the U.S.'s aggressive trade policies contributed to a rally in automotive stocks. The decline in oil prices also acted as a positive factor. According to the Nikkei, Mamoru Shimode, chief strategist at Resona Asset Management, analyzed that Vice President JD Vance's comments on social media attributing election losses to the Iran conflict raised hopes for progress in peace negotiations, leading to a drop in crude oil prices. Expectations that significant interest rate hikes and economic downturns could be avoided were clearly reflected in the rise of automotive stocks.
Tire, airline, and retail stocks also saw gains. Hiroyuki Ueno, chief strategist at Mitsui Sumitomo Trust Asset Management, remarked, "The selection of stocks today is in stark contrast to the spring when the war between the U.S. and Iran began."
Toyota received an additional boost in the afternoon. After rising 8% earlier in the day, the stock surged to close up 16.68% at 3,533 yen following its earnings announcement at 1:55 PM. The company raised its operating profit forecast for the fiscal year ending March 2027 from 3.4 trillion yen to 3.9 trillion yen, reflecting strong hybrid vehicle sales and a weaker yen. The announcement of an expanded share buyback program and stock buyback also contributed to positive sentiment regarding policy changes and shareholder returns.
In contrast, semiconductor stocks faced heavy selling pressure. The Nikkei average briefly fell by over 1,400 points, with companies like Advantest, SoftBank Group, Kioxia, and Ibiden all declining. While U.S. stocks rose the previous day amid views that established big tech companies would benefit if data center construction becomes challenging, some data center-related stocks fell. The Nikkei noted that Japanese AI and semiconductor stocks are primarily positioned to benefit from data center construction, leading to concerns about a slowdown in investment and subsequent stock price declines. However, Hideyuki Suzuki, head of investment information at SBI Securities, told Reuters, "The demand for AI remains unchanged. The decline in related stocks is an overreaction."
Expectations and caution regarding whether this trend will lead to a change in market leadership are mixed. Reuters reported that the perception of a significant turning point in U.S. policy due to the midterm elections could accelerate the turnover of holdings among institutional investors, which had previously remained at a cautious level.
Hiroyasu Mori, head of the investment information department at Okaji Securities, stated, "Today could be a turning point in stock selection." Conversely, Taku Sugawara, an analyst at Iwai Cosmo Securities, pointed out in the Nikkei that expectations for cost reductions at Fast Retailing remain speculative based on the election results, emphasizing that the key to sustained stock price increases will depend on how much improvement is reflected in actual earnings.
* This article has been translated by AI.
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