[Edaily Reporter Bang Sung Hoon ] The Japanese stock market is being dragged along by the Korean market. As the KOSPI’s fluctuations repeatedly cause the Nikkei Index to follow suit, complaints are emerging from Tokyo’s financial circles that this is overshadowing key factors specific to the Japanese market, such as the earnings performance of Japanese companies.

On the 5th, the Nihon Keizai (Nikkei) Shimbun pointed to this “Korea-linked” phenomenon as the reason behind the delay in overseas investors resuming their purchases of Japanese stocks. The newspaper added that while the Nikkei 225 average rose by more than 2,000 yen during the day compared to the previous day, market sentiment was not as enthusiastic as the index’s gain would suggest.

Led by Ibiden, which reported strong earnings the previous day, artificial intelligence (AI) and semiconductor-related stocks such as Advantest, Fujikura, and Kioxia Holdings all surged simultaneously, driving the index higher. Nevertheless, a trader at a major Japanese securities firm said, “Overseas ‘long-only’ investors are actually shifting their funds into domestic stocks,” adding, “It’s puzzling who is actually buying AI-related stocks.” The assessment is that there was none of the euphoria seen in April and May when overseas funds poured in, and that the rally was driven by short-term capital flowing through stock index futures.

The catalyst for this entrenched correlation was the two-week ceasefire agreed upon by the U.S. and Iran in early April following mediation by Pakistan. Investors worldwide ignited a buying frenzy for AI and semiconductor stocks, and because both the Nikkei and KOSPI indices have a high proportion of AI-related stocks, they began to be treated as virtually a single entity. On this day as well, as the KOSPI’s gains narrowed, the Nikkei Index’s upward momentum also slowed, as if in step. The Tokyo securities industry complains that the volatile movements of the Korean stock market—which is heavily influenced by supply and demand—spill over directly into Japan, often overshadowing domestic trading catalysts such as corporate earnings.

The wounds from last month’s sharp decline in AI stocks have not yet healed. Naohide Une, CEO of Investment Lab, which manages Japanese equity hedge funds, said, “While I believe we’ve moved past the bottom following last month’s plunge, it’s difficult to immediately increase our holdings and launch a counteroffensive,” adding, “Especially during periods of high volatility, we cannot increase our risk exposure.”

Tomonobu Sekiguchi, a fund manager at Asset Management One, is also hesitant to resume buying. “The share prices of Tokyo Electron and Murata Manufacturing have fallen, significantly reducing concerns about overvaluation, and the momentum behind AI investments remains strong,” he said. “If share prices return to a level that aligns with fundamental factors like earnings, I would like to increase our holdings.”

The strengthening of the yen resulting from coordinated intervention by Japan and the U.S. is also causing hesitation to buy. Toru Ibayashi, Head of Investment at H Fund Investment, said, “The strong yen has made it difficult to buy export-oriented stocks such as automakers, and I’m still not convinced about AI-related stocks,” adding, “The Japanese stock market lacks trading themes.” He said he had repurchased all of the futures sell positions he had placed around the 70,000-yen level of the Nikkei Index at around 62,000 yen and would refrain from both buying and selling for the time being.

September is being cited as the likely time for a full-scale resumption of buying. This is because, every year around this time, major Japanese and foreign securities firms host large-scale Japanese stock conferences to attract overseas investors; typically, investors visiting Japan broaden their understanding through meetings with local companies and then return home to begin buying.

Bank of America (BofA) Securities is holding its conference from the 31st of this month through the 4th of next month. The number of investors expected to attend has already surpassed last year’s figure, and according to Shinichiro Yamagami, head of the Japanese Equities Sales Department, requests for one-on-one meetings with individual companies—particularly those related to AI—have quadrupled compared to a year ago.

The newspaper predicted that once investors begin buying based on their analysis of individual companies, the unfounded correlation with the Korean stock market will naturally weaken. The expectation is that as volatility subsides, it will prompt further buying and lead to a year-end rally.