Nikkei 225 Rises 0.7% Towards 69,200 as Japan Q2 GDP Growth Slows

Key Takeaways

• The Nikkei 225 rose approximately 0.7% towards 69,200 after recovering from an early decline.
• Japan’s economy expanded at an annualised rate of 1.1% in the second quarter, below the 2.0% forecast.
• The yen strengthened modestly towards 159 per US dollar as markets reduced expectations of another Federal Reserve rate hike.

Nikkei 225 advances despite weaker Japan GDP data

The Nikkei 225 moved higher on Monday even after Japan reported slower-than-expected economic growth for the second quarter.

By 14:55 JST, the index had gained 0.67% to 69,173.15, having traded between 68,492.04 and 69,181.69 during the session. The benchmark remained roughly 14% above its late-July low, highlighting the strength of its recent recovery. Official Nikkei 225 data showed the index approaching its highest level since July.

Japan’s real gross domestic product increased by 0.3% quarter on quarter during the April-to-June period. This translated into annualised growth of 1.1%, below the 2.0% market forecast and slower than the upwardly revised 1.9% expansion recorded in the first quarter.

The GDP figures indicated that Japan’s recovery continued but lost momentum as weak domestic demand offset support from exports.

Household spending and investment weaken

Private consumption fell by 0.02%, marking its first decline in eight quarters. The result was notably weaker than the expected 0.5% increase and raised questions about how rising living costs are affecting Japanese households.

Business investment also disappointed. Capital expenditure declined by 1.2%, compared with forecasts for a 0.4% increase. Supply-chain uncertainty linked to the Middle East conflict and a one-off overseas sale of a pharmaceutical patent contributed to the weakness.

Exports provided the main source of support. Net external demand added around 0.5 percentage points to quarterly GDP growth. Japanese hybrid vehicle exports remained resilient, while global investment in artificial intelligence continued to support demand for semiconductor equipment and electronic components. Japan’s Q2 GDP report nevertheless showed that falling imports also contributed to the positive external balance.

The mixed data complicates the outlook for the Bank of Japan. Slower consumption could encourage policymakers to tighten monetary policy gradually, but the weak yen and elevated energy prices continue to create inflation risks.

AI and semiconductor stocks support the Nikkei 225

Technology and semiconductor-related companies have remained important drivers of the Japanese stock market’s recovery.

SoftBank Group has benefited from optimism surrounding its artificial intelligence investments, while Kioxia Holdings has attracted demand as the global memory-chip shortage supports pricing and earnings expectations. Semiconductor equipment companies such as Tokyo Electron and Advantest have also gained from continued spending on AI data centres.

This trend is especially important for the Nikkei 225 because it is a price-weighted index. Large movements in higher-priced technology shares can therefore have a substantial effect on the benchmark.

However, the sector’s strong performance also leaves the index sensitive to changes in AI investment expectations, semiconductor demand and US technology-stock sentiment. Any slowdown in data-centre spending or weaker earnings guidance could produce greater volatility among Japan’s recent market leaders.

Japanese yen strengthens towards 159 per dollar

The Japanese yen recovered modestly on Monday, with USD/JPY falling towards 159. The yen strengthened by approximately 0.2% to 158.97 per dollar, extending a cautious two-session rebound.

The currency largely overlooked the weaker Japanese GDP figures. Instead, softer US economic data reduced expectations that the Federal Reserve would raise interest rates again in September. Fed funds futures indicated a probability of almost 70% that policymakers would leave rates unchanged at the next meeting, helping to weaken the US dollar. The latest currency-market data also showed the dollar index trading near its lowest level of the month.

Interest-rate differences remain a challenge for the yen. The Bank of Japan maintained its overnight policy rate at around 1.0% at its July meeting, leaving Japanese rates below those in the United States. This gap continues to encourage carry trades in which investors borrow yen to purchase higher-yielding assets.

Markets are also monitoring the possibility of renewed currency intervention if USD/JPY rises sharply above 160. In Japan, intervention decisions fall under the Ministry of Finance, while the Bank of Japan executes transactions as its agent. This division of responsibility is outlined in the Bank of Japan’s intervention framework.

How yen movements affect Japanese stocks

A weaker yen can support Japanese exporters because overseas revenue becomes more valuable when converted into the domestic currency. Automobile, machinery and technology companies are often among the main beneficiaries.

However, yen depreciation also increases the cost of imported oil, raw materials and food. This can reduce corporate margins, weaken household purchasing power and place additional pressure on domestic consumption.

A stronger yen produces the opposite effects. It may limit the translated earnings of exporters but reduce import costs for energy-dependent companies and businesses focused on domestic demand.

The relationship between the yen and the Nikkei 225 is therefore not always straightforward. Monday’s simultaneous rise in Japanese stocks and the yen suggested that investors were placing greater emphasis on AI-related earnings, resilient exports and the possibility that weaker GDP growth would encourage a gradual approach from the BoJ.

Nikkei 225 chart highlights resistance near the June high

The Nikkei 225 has moved above the descending channel associated with a bullish flag pattern on the daily chart. The index also remains above its 50-day exponential moving average, while the Relative Strength Index has risen towards 60.

These indicators suggest that positive momentum remains intact, although the index has not yet returned to overbought territory.

The 69,200 area represents the nearest resistance following Monday’s advance. A sustained break above this level could bring the psychological 70,000 mark back into focus, followed by the June high around 72,800–72,900.

Initial support can be found near Monday’s low around 68,500. A deeper retreat towards the 50-day EMA or the previous channel breakout area would weaken the current technical structure.

The next direction for the index will depend on the BoJ’s policy outlook, USD/JPY movements, crude oil prices and earnings expectations for Japan’s leading technology companies. Japan’s second preliminary GDP estimate, scheduled for 8 September, could also provide a clearer assessment of domestic consumption and investment.