Nikkei 225 slips as political turmoil and profit-taking weigh on sentiment

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Nikkei 225 retreats after record highs as politics and profit-taking weigh

Highlights

- Nikkei 225 closed at 43,459, down 0.42%, with Topix off 0.51% at 3,122.

- Ishiba’s resignation fuels uncertainty despite U.S.-Japan auto tariff deal.

- SoftBank fell 4.4% and Fujikura 4.8% as profit-taking hit major stocks.

Prime Minister Shigeru Ishiba’s resignation has created fresh instability within Japan’s leadership ranks. Ishiba stepped down amid deepening party fractures and lingering pressure from last year’s election loss. His exit comes just as Tokyo secured a trade agreement with Washington that cut U.S. tariffs on Japanese autos from 27.5% to 15% while expanding access for U.S. automakers into Japan.

Nikkei 225 index dynamics (Source: TradingView)

The deal was initially seen as a structural victory for exporters, particularly Japan’s auto sector, but the leadership vacuum muted enthusiasm. Analysts note that investor sentiment is now focused less on the tariff relief and more on whether the ruling party can ensure continuity of economic policy.

Conglomerates and financials lead declines

Profit-taking was most visible among market heavyweights and high-beta names. SoftBank Group slumped 4.4%, extending recent volatility linked to its Vision Fund portfolio. Fujikura shed 4.8% on margin concerns, while Sanrio pulled back 2.1% following a strong run. Banks also weakened, with Mitsubishi UFJ falling 1.1%.

Automakers, which were expected to benefit most from the tariff reduction, saw relatively mild declines. Toyota slipped just 0.7%, a sign that investors had already priced in much of the trade benefit before the formal announcement.

Technical outlook suggests cooling momentum

From a technical standpoint, the Nikkei remains within a rising channel that has guided its gains since spring. Support is firmly established near 42,900, where the 20-day EMA aligns, with deeper cushions at 42,384 (50-day EMA) and 41,454 (100-day EMA). The RSI at 62 indicates bullish momentum remains intact, though it is easing from overbought territory.

A sustained push above 43,800 would reignite bullish momentum and open a path toward the 44,500–45,000 zone. Conversely, a break below 42,900 risks a deeper retracement toward 41,800.

Nikkei 225 index outlook

The Nikkei’s rally is still supported by resilient corporate earnings, favorable monetary policy, and recent trade concessions. However, Ishiba’s resignation introduces short-term political risk, and record highs have invited natural profit-taking. Until clarity emerges on Japan’s leadership transition, sentiment is likely to remain fragile even as technical supports limit downside.

In previous coverage, we highlighted how the Nikkei’s structural uptrend was underpinned by sector strength in technology and defense names. While those drivers remain in place, the latest bout of volatility underscores how political events can temporarily overshadow supportive fundamentals.

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