Japanese stocks remain under pressure as investors react to U.S. tariff risks, economic slowdown fears, and the Bank of Japan’s policy stance. The Nikkei 225, which had been fluctuating between 38,000 and 40,000 since late 2024, recently dropped below 38,000, raising concerns about further declines.
Citi analysts attribute this weakness to multiple factors, including disappointing U.S. economic data, uncertainty over President Donald Trump’s proposed tariffs, a strengthening yen, and corrections in high-tech stocks linked to U.S. markets. Trump’s tariff plans target key sectors like autos, semiconductors, and pharmaceuticals, while a report on reciprocal tariffs, expected in August, could bring further trade restrictions.
Despite these risks, Citi believes Japanese equities have already factored in much of the negative sentiment, with valuations trailing global peers. While short-term volatility is likely, the Nikkei 225 may find support around 35,500, with the TOPIX stabilizing near 2,550.


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