Japan's Nikkei share average extended its decline for a second consecutive day on Thursday, falling 1.60% to 51,117.26 as investors continued profit-taking activities in artificial intelligence stocks and trade tensions with China escalated. The broader Topix index declined 0.80%, marking another session of weakness following Tuesday's record closing high.

Market Performance Overview

The latest decline follows Wednesday's 1.10% drop, bringing the Nikkei down from its record closing high achieved on Tuesday. The selling pressure has been concentrated in high-priced technology stocks, particularly those in the AI and semiconductor sectors that had driven the recent rally.

Wataru Akiyama, strategist at Nomura Securities, explained the market dynamics: "The decline in certain high-priced stocks, particularly AI and semiconductor-related stocks, is weighing heavily on the index today."

AI and Technology Sector Selloff

The artificial intelligence sector, which had been a major driver of recent gains, faced significant selling pressure. SoftBank Group, a major domestic investor in AI, emerged as the biggest percentage loser, sliding 7.60%. Other chip sector heavyweights including Advantest Corp and Tokyo Electron, which had been major beneficiaries of AI optimism, also contributed to the decline.

China Trade Tensions Escalate

Market sentiment was further dampened by escalating trade tensions with China. The Chinese commerce ministry announced the launch of an anti-dumping probe into imports of dichlorosilane, a chemical used in chipmaking, specifically targeting imports from Japan. This development comes amid already strained ties between the two countries.

The probe follows China's earlier announcement this week of a ban on exports of dual-use items to Japan, covering goods, software, and technologies that have both civilian and military applications, including certain rare earth elements essential for manufacturing drones and chips.

Chemical Sector Impact

Japanese chemical manufacturers faced direct pressure from the anti-dumping investigation announcement:

Market Breadth and Trading Activity

Market internals revealed the extent of selling pressure, with 149 decliners outnumbering 74 advancers on the Nikkei. This represents a significant shift from previous sessions where market breadth had been more balanced, indicating broader-based weakness in the current session.

The concentration of selling in high-priced technology and AI-related stocks reflects investor caution about valuations in these sectors after their strong performance over recent months. The pharmaceutical sector provided some support, with Sumitomo Pharma emerging as the sharpest gainer, rising 7.80%.

Market Outlook

The two-day decline represents a natural correction following the Nikkei's achievement of record highs earlier in the week. However, the escalating trade tensions with China and the concentrated selling in previously strong AI and technology sectors suggest investors are reassessing risk in these areas. The market's performance in coming sessions will likely depend on developments in China-Japan trade relations and whether the technology sector can stabilize after the recent profit-taking.

Japan's benchmark Nikkei index achieved a record closing high on Tuesday, rising 1.32% to 52,518.08 points as the outlook for domestic corporate profits improved. This follows Monday's strong performance where the index jumped nearly 3.00% to 51,832.8 points, marking its highest close since October 31 at that time.

Market Performance Overview

The Nikkei has gained 4.00% in the first two trading sessions, taking cues from Wall Street's strength. The broader Topix also closed at a record high, rising 1.75% to 3,538.44 points, building on Monday's 2.01% gain to 3,477.52 points.

Energy and Banking Sectors Lead Rally

Energy stocks emerged as Tuesday's top performers, with refiner Eneos Holdings jumping 5.39% and leading gains in the Topix's oil and coal products index, which surged 4.70% to become the top performer among the Tokyo Stock Exchange's 33 industry sub-indexes. This shift followed U.S. military action that captured Venezuelan President Nicolas Maduro.

The banking sector also posted strong gains, with the bank share index climbing 3.35%. Mizuho Financial Group jumped 5.00%, while Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group each rose nearly 3.00%.

Technology Stocks Continue Strong Performance

Chip-related stocks maintained their momentum from Monday's session, when Advantest jumped 7.84% and Tokyo Electron climbed 7.60%. These gains tracked a 4.00% rise in the U.S. semiconductor index, with technology stocks continuing to show strength across both sessions.

Strong Market Fundamentals Drive Growth

According to Kazunori Tatebe, chief strategist at Daiwa Asset Management, "The fundamental setting for Japanese equities is strong, so that when the market sees positive cues, the appetite grows. These fundamentals are based on the shift from deflation to inflation and corporate governance reform. And domestic investors have become more willing to buy Japanese stocks."

The broad-based rally showed strong market participation, with 84% of the more than 1,600 stocks on the TSE's prime market rising, 13% falling, and 2% trading flat. However, Chubu Electric Power bucked the trend, falling 9.59% to become the worst percentage loser after disclosing possible problems with earthquake standards used at a nuclear plant.