[October 20] Today's Stock Market Report: Nikkei Average briefly falls over 1,100 yen, battling to hold 64,000!

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Thin trading volume for the second consecutive day below 7 trillion yen since April, remnants of US AI credit anxiety, Prime Minister Takaichi’s “Go To Eat” remarks, and Fast Retailing’s price hikes saved domestic demand and defensive stocks. No blind spots in the AI bubble.

• Nikkei Stock Average Closing Price : 64,075.42 yen (-841.28 (-1.30%))

• TOPIX : 4,009.21 points (-58.27 (-1.43%))

• Trading Value (TSE Prime) : 6.799234 trillion yen

• Number of advancing stocks: 335 / Number of declining stocks: 1181 / Unchanged stocks：37

• External market environment：US SOX index rebounds but remnants of credit anxiety toward emerging US AI cloud companies remain, WTI crude oil rises again, oil prices high due to Middle East situation

• Notes: Kioxia, Murata Manufacturing, and Fujikura fell. On the other hand, Fast Retailing, Terumo, and Konami Group rose.

1. Market Close: Sharp drop of over 1,100 yen in the afternoon session! A day at the mercy of external factors amid thin trading volume below 7 trillion yen for the second consecutive day

The Tokyo stock market on Tuesday, October 20, 2026, saw selling lead from the opening, mainly in high-priced semiconductor and AI-related stocks, following the slight rebound of the Philadelphia Semiconductor Index (SOX index) in the US market the previous day, but also due to the fact that financial and credit anxieties regarding low-rated emerging AI cloud companies (such as US CoreWeave) have not been completely wiped out, and the trend of the highly correlated South Korean stock market (KOSPI) moving weakly from the morning.

Although dip-buying and selling on rallies were mixed in the morning session, selling pressure on AI semiconductor stocks intensified further in the afternoon session. Furthermore, long-term interest rates fell following the results of the government bond auction held just after noon, causing bank stocks that had supported the market until now to plummet. The Nikkei Stock Average accelerated its decline, and the drop during trading hours exceeded 1,100 yen, leading to a severe development where it was sold down to the brink of falling below the 64,000 yen mark (low of 63,800 yen range).

The closing price of the Nikkei Stock Average was 841.28 yen lower than the previous business day (-1.30%) at 64,075.42 yen, marking a significant decline for the second consecutive business day. It fell below the low range (around 64,400 yen) set during the historic crash on the 15th of last week on a closing basis, and the market remains nervous as it continues to search for support levels.

Meanwhile, the TOPIX (Tokyo Stock Price Index), which consists of a broad range of stocks on the TSE Prime Market, was also forced to move in negative territory all day, hit directly by the sharp drop in bank stocks and the weakness of cyclical stocks in the afternoon. The closing price recorded 58.27 points lower than the previous business day (-1.43%) at 4,009.21 points, marking a significant decline for the first time in 3 business days. Although it barely managed to defend the psychological support line of 4,000 points, the rate of decline exceeded that of the Nikkei Average, leaving an impression of strong adjustment across the entire market.

Trading value on the TSE Prime Market remained at 6.799234 trillion yen (estimated trading volume of 2.14871 billion shares). Following the previous day (6.78 trillion yen), this was a record low level (extreme thin trading) for the first time in about half a year since April this year, “falling below the 7 trillion yen milestone for two consecutive business days.” With full-scale corporate earnings announcements in Japan and the US starting from the latter half of this week, and the monetary policy meetings of the three major central banks in Japan, the US, and Europe scheduled for next week, large institutional investors are completely refraining from active trading, and market energy has dropped to the limit.

Looking at the internal structure of the market, out of all 33 sectors on the TSE Prime Market, “only 9 sectors rose, while 24 sectors fell.” The non-ferrous metal sector fell 5.6%, the banking sector was sold off by over 4%, and SoftBank Group plunged 6%, with large-cap stocks with high index contribution leading the decline. However, on the other hand, Fast Retailing, which announced a price hike for products at Uniqlo in Japan, rose over 2% to “finish at today’s high,” and restaurant and retail stocks performed against the trend after Prime Minister Takaichi suggested support measures for the restaurant industry (utilization of Go To Eat and premium gift certificates) accompanying food tax cuts in Diet deliberations. Defensive pharmaceutical stocks like Chugai Pharmaceutical and Koei Tecmo HD with good earnings were bought, making it a day that carved out a clear polarization between ‘selling of high-tech and cyclical stocks afraid of external factors’ and ‘buying of domestic demand and defensive stocks with solid independent catalysts’.

2. Mechanism of market plunge and weakness: ‘Overreaction to external factors’ caused by thin trading and interest rate drop shock

Despite the SOX index rebounding for the first time in 8 business days in the US market the previous day, why did the Tokyo stock market move weakly from the morning and suffer a sharp drop of over 1,100 yen in the afternoon? I will explain the 3 major mechanisms of the market plunge.

1. The ‘Residue of Credit Anxiety’ Lurking Behind the Rebound of the US SOX Index and the Shadow of the South Korean KOSPI

In the US market the previous day (the 19th), the Philadelphia Semiconductor Index (SOX Index) finally put an end to its 8-day losing streak and closed the session with a rebound. However, this rebound was fraught with fragility. The ‘credit risk regarding emerging AI-related companies with low credit ratings relying on massive borrowings and corporate bond issuance to force through data center investments,’ symbolized by the US AI cloud giant CoreWeave that shook the market, has by no means been fundamentally resolved.

This sense of caution was clearly reflected in the South Korean stock market (KOSPI), which has an extremely high correlation with Japan’s semiconductor supply chain. In the Korean market, high-tech stocks including SK Hynix and Samsung Electronics trended downward from the morning, weighing heavily on the index. Seeing this, foreign investors took the lead in selling high-priced semiconductor stocks in the Tokyo market as well, such as Advantest, Tokyo Electron, and SoftBank Group.

2. Dark Clouds Over Cyclical Sectors Brought by the Resurgence of Crude Oil Prices

Furthermore, what chilled a wide range of industries outside of high-tech was the renewed rise in international crude oil prices. As the quagmire in the Middle East and geopolitical risks surrounding Saudi Arabia continue to smolder, WTI crude oil futures prices have risen again, reigniting cautious views in the market that ‘rising energy costs might lead to a loss of momentum in the global economy.’ As a result, profit-taking selling spread across cyclical sectors whose performance is easily swayed by economic trends, such as chemicals, machinery, glass and ceramic products, and non-ferrous metals, accelerating the decline of the market as a whole.

3. The Irony Brought by the Strong 20-Year JGB Auction: ‘Pulling the Ladder’ from Bank Stocks Due to Falling Interest Rates

And the biggest deciding factor that pushed the Nikkei Average down by over 1,100 yen at one point after 1:00 PM in the afternoon session, and drove the TOPIX to the brink of falling below 4,000 points, was the ‘sharp decline in long-term interest rates in the domestic bond market.’

Shortly after noon today, the results of the ‘198th 20-Year Interest-Bearing Government Bond Auction’ conducted by the Ministry of Finance were announced. With extremely strong demand (robust bidding) confirmed that exceeded the prior expectations of market participants, bond futures surged, and Japanese long-term interest rates, such as the yield on newly issued 20-year and 10-year government bonds, turned downward.

While the strength of the government bond auction itself is positive news for the country’s fiscal financing, it was an unexpected ‘ladder-pulling’ for the stock market. For the banking sector, which had been bought up as a bulwark of the market against the backdrop of a solid earnings improvement story—’BOJ additional rate hikes and rising domestic interest rates = expansion of lending margins’—position adjustments (profit-taking) triggered by the decline in interest rates erupted all at once. The fact that bank stocks across the board, from mega-banks to regional banks, staged a sharp decline of over 4% decisively chilled the sentiment of the entire market in the afternoon session.

3. ‘Below 7 Trillion Yen for 2 Consecutive Days’ Since April: Why Does Volatility Amplify Amidst Thin Trading?

Trading value on the Tokyo Stock Exchange Prime Market today remained at 6.7992 trillion yen, marking the second consecutive day of falling below the 7 trillion yen milestone (following 6.78 trillion yen the previous day), the most extreme thin trading seen since late April of this year.

I will explain the background of this decline in trading energy and the market distortions it brings.

From the latter half of this week, major companies in Japan and the US will announce their July-September quarterly earnings one after another, and the interim earnings materials for domestic companies will be fully available. Furthermore, the three major central bank meetings (ECB, FOMC, BOJ) of Japan, the US, and Europe are coming up next week. For institutional investors, a period continues where there is
‘no reason to rush to build new positions now.’

Because the overall market trading volume and value are extremely thin, the order book (quoted prices) has become shallow. Therefore, the Nikkei Average is easily swung up and down by a scale of 1,000 yen due to news of US emerging AI credit anxiety, small fluctuations in interest rates accompanying government bond auctions, or slight selling pressure led by futures.

The current Tokyo stock market is not falling due to a definitive collapse in fundamentals, but is in a state where ‘external noise and interest rate fluctuations are being excessively amplified in a vacuum zone of low liquidity before earnings announcements.’ Precisely because trading is thin, a unique market environment is being formed where intense capital is locally concentrated in stocks that have solid positive factors (price increases or policy support) for individual companies, which I will describe later.

4. Trends by Sector and Industry: ‘9 Sectors Up vs. 24 Sectors Down’ Out of 33! The Truth Behind the Surge in Dining and Retail Amidst Prime Minister Takaichi’s ‘Go To Eat’ Remarks, and the Sharp Drop in Banks and Non-Ferrous Metals

Looking at the stock price indices by industry, out of all 33 industries, ‘only 9 industries rose,’ while ’24 industries fell.’ While sectors hit directly by falling interest rates and AI anxiety sank significantly, domestic demand consumption sectors that leveraged policy support and price-passing power emerged strongly.

[Rising Sector 1: Retail (The All-Around Rise in Dining-Related Stocks and the Impact of Prime Minister Takaichi’s Remarks)]

The sector that shone most brightly in the market today was the retail sector, especially the powerful rise in ‘dining-related stocks.’ The biggest catalyst for the buying of dining stocks was the important response by Prime Minister Takaichi during Diet deliberations.

In her Diet response, Prime Minister Takaichi officially expressed a policy to specifically consider ‘issuing premium gift certificates’ and ‘reutilizing the Go To Eat project’ implemented in the past as support measures that take into account the impact on the dining industry, in relation to the reduced tax rate and tax reduction measures for food products currently under consideration.

If a tax cut targeting only food products had been implemented first, there were concerns about structural risks where demand for eating at home would rise at supermarkets while demand for eating out would decline. However, the government’s clear stance on implementing a set of powerful demand-stimulating measures, starting with “Go To Eat,” has dispelled concerns about headwinds for the industry, and it is being welcomed by the stock market as a huge tailwind (positive factor) for restaurant chains.

On the other hand, there are concerns about fiscal discipline. Launching large-scale industrial support measures in addition to a consumption tax cut carries the risk of rapidly inflating the nation’s fiscal burden even further. If the market begins to worry about the future expansion of the fiscal deficit, there is a risk that “bad interest rate hikes” driven by aversion to increased government bond issuance will be on the radar, and it will be necessary to closely monitor the progress of discussions regarding the scale and funding sources as support measures are fleshed out.bad interest rate hikes will be on the radar, and it will be necessary to closely monitor the progress of discussions regarding the scale and funding sources as support measures are fleshed out.

[Rising Sectors ②: Other Products & Pharmaceuticals (Safe Havens for Capital Flight)]

• Other Products (Top Sector Gainer): In addition to the sharp rise in Koei Tecmo Holdings, which had strong earnings as described later, game and entertainment stocks such as Nintendo and Konami Group were all bought. In a phase where cyclical and high-tech stocks are volatile, entertainment companies with unique and powerful IP (intellectual property) became the perfect destination for capital.

• Pharmaceuticals (Chugai Pharmaceutical closes at high): Defensive sector leaders Chugai Pharmaceutical and Daiichi Sankyo were bought. Amidst rising uncertainty in the external environment, they attracted buying from institutional investors as stable growth stocks with extremely low earnings volatility, and Chugai Pharmaceutical recorded today’s high at the close.

[The Truth Behind Falling Sectors: Double Shock of Non-Ferrous Metals -5.6% and Banking -4%+]

On the other hand, extremely clear and intense selling was concentrated in today’s falling sectors.

• Non-Ferrous Metals (Sector decline of -5.6%, ranking last): Non-ferrous metals were the most aggressively sold off among all 33 industry sectors. Fujikura and Furukawa Electric, which handle optical wiring for data centers, continued to fall sharply. With credit concerns regarding US-based CoreWeave simmering, position-unwinding selling due to fears of a slowdown in AI data center investment did not stop.

• Banking (Sharp drop of over 4%, sudden reversal of interest margin expectations): As mentioned above, following the decline in long-term interest rates due to the strong 20-year government bond auction, the entire sector, from the three mega-banks Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho to regional banks, saw a significant decline of over 4%. As a sector that had been profitable in the recent high-interest-rate market, it became a prime target for profit-taking.

• Information & Communication (Hit by sharp drop in SoftBank Group): The 6% sharp drop in SoftBank Group, which has a high contribution to the index, dragged down the entire sector.

5. Notable Individual Stocks

Today, we will explain the trends of notable stocks that painted an extreme picture of light and shadow due to announcements of product price hikes, upward revisions of first-half earnings, the direct hit from AI cloud credit concerns, and defensive buying as a safe haven.

① Fast Retailing

While the Nikkei Average plummeted by over 1,100 yen at one point, Fast Retailing, the stock with the highest contribution to the Nikkei Average, gathered intense buying in a lone struggle, preventing the market from collapsing.

The official announcement of price increases for some major products in its core domestic “Uniqlo” business was received as a strong positive factor in the stock market.

Normally, price hike announcements tend to raise concerns about decreased demand or customer attrition, but the biggest factor for why this price hike was evaluated positively is that “domestic real wages are trending with a positive year-on-year growth.” In the current situation where household purchasing power is on a steady recovery trend, the view spread that the risk of causing consumers to refrain from buying even if price pass-through is advanced is extremely low, and that the price revision would be accepted smoothly.

As a result, expectations grew that it would boost the average customer spend without sacrificing customer numbers, easily absorbing the current rise in raw material and labor costs, and dramatically improving gross profit margins and operating profit in the second half. Backed by strong brand power and tailwinds from the macro environment, the stock price closed up 2.0% (+1,510 yen) from the previous day, achieving a strong high-end close at today’s highest price.

② Koei Tecmo Holdings

Major game manufacturer Koei Tecmo HD rebounded, bucking the poor market sentiment and being bought strongly, up 3.8% (+63 yen, closing price 1,741 yen) from the previous day.

The upward revision of sales and operating profit in the consolidated earnings plan for the first half of the fiscal year ending March 2027 (April-September period), announced after the close of trading the previous day, was straightforwardly welcomed by the stock market. In addition to the strong performance of self-developed titles, the steadiness of high-margin repeat sales strongly boosted core business profits.

Following the initial buying, the market’s focus has already shifted to the next development. This upward revision is limited to the first-half plan, with the full-year earnings forecast remaining unchanged. Therefore, attention is likely to focus on expectations for further upside in the official interim earnings announcement scheduled for next week, October 26, specifically regarding how the company will upwardly revise its second-half outlook. The extent to which the first-half upside spills over into an upward revision of the full-year forecast will be a key focus in determining the sustainability of future stock prices.

3. SoftBank Group

SoftBank Group (SBG) plummeted in today’s market, down 6.0% from the previous day, becoming the primary negative contributor that single-handedly dragged down the Nikkei Average. In addition to the lingering credit concerns regarding the aforementioned emerging US AI cloud companies (such as CoreWeave), the stock faced heavy selling pressure due to caution over the future of its subsidiary, Arm, and profit-taking following the recent rally in AI-related stocks, placing it at the forefront of the high-tech correction.

4. Chugai Pharmaceutical

Chugai Pharmaceutical, a leader in the pharmaceutical industry, attracted steady buying throughout the day even as the overall market fell by over 1,000 yen, and like Fast Retailing, it recorded “a high-price close for the day”. While the entire market was swayed by external factors, institutional investors made conviction buys in the company, which possesses a groundbreaking new drug pipeline and a solid financial foundation, as a safe haven for risk aversion.

6. Future Outlook: Tonight’s Netflix and Tomorrow’s Meta & Tesla Earnings – The ‘Judgment on AI Investment ROI’ and French Political Instability

The Tokyo market today saw the Nikkei Average sold down by over 1,100 yen at one point, with trading volume falling below 7 trillion yen for the second consecutive day, marking an extremely thin market.

Regarding the ‘global catalysts’ looming from tonight through tomorrow and into the latter half of this week, I will provide an analysis that will determine the fate of the market.

Tonight/Tomorrow’s US Mega-Tech Earnings Rush: ‘Monetization of AI Investment (ROI)’ is the Biggest Focus

・Tonight (after the US close on the 20th): ‘Netflix’ earnings ・Tomorrow (after the US close on the 21st): ‘Meta Platforms’, ‘Tesla’, and ‘IBM’ earnings

[Absolute Condition for a High-Tech Stock Rebound] Following the recent market plunge, the market’s attention on high-tech stocks is higher than usual. Especially for giant cloud and AI companies like Meta, what the market is looking for is not just the presentation of ‘huge capital expenditure (Capex) plans.’

‘Are they already generating solid profits and cash flow from their current business?’ and ‘Is there a clear path to recovering the massive AI investments (profitability of monetization)?’. If both the strength of the investment plan and ‘actual profitability’ are proven, market credit concerns will be dispelled, serving as a powerful trigger for a global high-tech stock rebound!

External Environmental Risks from Europe: French Political Instability and the Spread of Rising Interest Rates and Social Unrest

There is caution regarding rising long-term interest rates in Europe and the spread of social unrest against the backdrop of political turmoil in France. Furthermore, oil prices remain high due to tensions in the Middle East. Although domestic corporate and household sentiment is on a recovery trend, the Japanese stock market continues to be extremely susceptible to these ‘external environment headlines’.

Short-term Selection Strategy: Temporary Shift to Domestic Demand and Defensive Sectors

Until the uncertainty of external factors is cleared, the market’s focus is likely to shift toward ‘domestic demand and defensive stocks’ such as dining, retail, food, and pharmaceuticals, which bucked the trend today.

Portfolio Strategy to Survive the Vacuum Before the Storm

The greatest truth proven by today’s market is that ‘the current stock price decline is not due to a decline in the earnings power of Japanese companies, but rather that external noise such as US emerging AI credit concerns, French politics, and high oil prices is being excessively amplified in a thin market with trading volume below 7 trillion yen.’

In fact, the reality that Fast Retailing, which implemented price hikes against the backdrop of positive domestic real wages, closed at today’s high, and that dining and retail companies, buoyed by Prime Minister Ishiba’s support for the dining industry, rose across the board, is irrefutable evidence that the domestic Japanese economy is on an extremely robust recovery trajectory.

If tomorrow’s (the 21st) earnings from US companies Meta Platforms and Tesla show a ‘solid path to profit recovery (proof of ROI)’ for their massive AI investments, a powerful rebound, involving the covering of short positions, will arrive for AI semiconductor stocks like Advantest, Tokyo Electron, and SoftBank Group, which were sold off today.

Until the turbulence in the external environment subsides, we are in a critical phase where we should use ‘domestic demand/defensive winners’ that showed strength today, such as Fast Retailing, dining/retail, and Chugai Pharmaceutical, as a solid foundation for our portfolios, while calmly identifying the dips in world-class semiconductor and infrastructure stocks that were unreasonably sold off in the thin market, preparing for the rebound market in the US mega-earnings and domestic interim earnings season that will begin in earnest in the latter half of this week.