Japan’s Nikkei Slips as Tariff Uncertainty and U.S. Tech Selloff Weigh on Market

July 2, 2025 – Japanese equities edged lower on Wednesday, as investor sentiment was dampened by ongoing U.S.-Japan tariff negotiations and a sharp selloff in major U.S. technology stocks. The Nikkei 225 Index declined 223.85 points, or 0.6%, to close at 39,762.48, continuing a downward trend that has seen it lose over 3% this week.

Key Market Pressures: Tariffs and Tech Retreat

The overnight dip in U.S. markets, especially the Nasdaq, weighed heavily on Japanese sentiment. The NYFANG index, which tracks 10 prominent U.S. tech giants, slid 1.8%, amplifying global concerns.

Simultaneously, the lack of clarity over trade negotiations between Japan and the United States added to market jitters. President Donald Trump had set a July 9 deadline for raising tariffs, but progress on a deal remains elusive. Japanese officials have been pressing Washington to revoke a 25% tariff on automobiles and a 24% reciprocal tariff on various imports. While the reciprocal tariff has been temporarily paused, no breakthrough has been achieved despite nearly three months of talks.

Fed Rate Cut Expectations Offer Limited Relief

Providing a partial cushion, investors took note of comments by Federal Reserve Chair Jerome Powell, who signalled the possibility of an interest rate cut during the Fed’s upcoming July 29–30 meeting. This helped prevent a steeper slide by offering hope for looser monetary conditions globally.

Sector Performance: Mixed Results

Despite the broader market decline, some sectors managed to post gains. Daikin Industries Ltd led the winners with a 4.6% jump. However, losses were more pronounced among other major stocks. Konami Group Corp fell 6.86%, Bandai Namco Holdings slipped 5.14%, and Kawasaki Heavy Industries dropped 5%.

Political and Economic Crosswinds Ahead

Looking ahead, investors are also closely watching Japan’s upcoming upper house elections on July 20. The outcome could influence the government’s stance and strategy in trade discussions, especially as Tokyo remains determined to avert further tariff impositions.

Nikkei Still Up for the Quarter

Despite this week’s slide, the Nikkei has advanced nearly 11% since April 2, when President Trump first announced the reciprocal tariffs. Analysts believe the index’s broader strength has been supported by expectations of U.S. rate cuts and a global rally in semiconductor stocks over the past month.

Summary

Japan’s stock market is navigating a delicate balance of global tech volatility and stalled trade negotiations. While rate cut hopes from the U.S. Federal Reserve have softened the blow, the Nikkei remains vulnerable to both domestic political outcomes and unresolved tariff tensions with the United States.

Disclaimer:  At HDFC SKY, we take utmost care and due diligence in curating and presenting news and market-related content. However, inadvertent errors or omissions may occasionally occur.

If you have any concerns, questions, or wish to point out any discrepancies in our content, please feel free to write to us at content@hdfcsec.com

Please note that the information shared is intended solely for informational purposes and does not make any investment recommendations