Nikkei Turns Lower After Hitting Record High; SoftBank Jumps More Than 8%

TradingKey - During the Asian trading session on May 26, the Nikkei 225 Index hit a record high at the open before turning lower as investors locked in profits at elevated levels. SoftBank Group, however, surged against the trend to become the largest contributor to the index, as the broader market showed a clear pattern of sector divergence.

The Nikkei 225 Index opened at 65,247.24, up 0.14%, while the TOPIX opened at 3,921.90, down 0.52%. By the end of the morning session, the Nikkei 225 stood at 64,897.64, a decline of approximately 0.4%.

[Source: TradingView]

Heavyweight stocks saw mixed performance. SoftBank Group rose 8.59%, while Advantest fell 5.48% and Tokyo Electron dropped 2.34%. The trading house sector was broadly under pressure, with Mitsubishi Corp falling 3.05% and Mitsui & Co. sliding 1.11%.

Previously, Warren Buffett's Berkshire Hathaway ( BRKb) had raised its holdings in each of the five major trading houses to over 10% and planned to increase its investment in Tokio Marine Holdings. This long-term allocation logic cushioned the decline in the trading house sector, but short-term profit-taking dominated the market.

SoftBank Bucks Trend to Hit New High

[Source: TradingView]

SoftBank Group surged more than 8% against the trend, becoming the largest positive contributor to the Nikkei Index for the day. On Monday, SoftBank shares closed up 4.63% at 7,070 yen.

Market optimism surrounding two potential IPOs continues to drive the stock price higher. OpenAI, a SoftBank portfolio company, is reportedly preparing for an IPO with a valuation that could exceed $1 trillion; SoftBank subsidiary SB Energy has also announced plans to file for a U.S. IPO.

SoftBank is currently one of OpenAI's largest shareholders and has committed an additional $20 billion, bringing its total investment to nearly $65 billion. According to current plans, SoftBank will hold approximately 13% of OpenAI by October this year.

Oil prices fall on news of US-Iran talks

According to media reports, the U.S. and Iran have made progress in restoring shipping security in the Strait of Hormuz, though disagreements persist over the wording of sanctions relief. Consequently, Brent crude tumbled more than 5% in the previous session, easing inflationary pressures for energy importers such as Japan.

The impact of falling oil prices on Japan is primarily evident in three areas: first, trade and prices—as Japan is highly dependent on Middle Eastern crude, lower import costs directly alleviate corporate price pressures and improve the terms of trade; second, the fiscal burden—the government recently compiled a supplementary budget exceeding 3 trillion yen, and falling oil prices will reduce gasoline subsidy expenditures, potentially narrowing the issuance of deficit-financing bonds; and third, monetary policy—the retreat in energy costs makes inflationary pressures more manageable, allowing the Bank of Japan to avoid aggressive rate hikes and providing more policy flexibility.

The Yen and JGBs: Interest Rate Differentials Remain the Core Suppressing Factor

In the foreign exchange market, USD/JPY was trading at 158.93, down 0.17% from the previous day. At its April meeting, the Bank of Japan voted 6-3 to maintain the policy rate at 0.75%, though some members already advocated for a hike to 1.0%. S&P Global expects the BOJ to raise the rate to 1.0% in July and potentially further to 1.5% by 2027. The Japan-U.S. yield spread remains at approximately 500 basis points, while falling oil prices have reduced import costs.

In the JGB market, the 10-year Japanese government bond yield rose 1.5 basis points to 2.705% this morning after a sharp decline yesterday. Yesterday's yield drop was primarily driven by a plunge in oil prices easing inflation concerns, which reduced the urgency for the BOJ to hike rates in the short term.

However, yields rebounded today as traders noted some investors took profits on bond positions following yesterday's decline; meanwhile, lingering skepticism regarding the details of U.S.-Iran negotiations triggered some selling in long-dated bonds. An analyst at Mitsubishi UFJ Asset Management stated that if long-term yields stay consistently above 3%, it would pose a burden on the real economy. Pimco has established long positions in 30-year JGBs, betting on a flattening yield curve.

U.S. and London markets were closed on Monday for holidays. Bank of Japan Governor Kazuo Ueda will speak at a conference hosted by the bank on Wednesday, with market participants looking for hints regarding the June interest rate decision.