Japanese media said Korea's stock market is behind the unusually large volatility in Japan's market. It said the moves of domestic semiconductor stocks such as Samsung Electronics and SK hynix are syncing with Japanese artificial intelligence (AI) and semiconductor names, widening swings in the Nikkei 225 average (Nikkei).
According to the Nikkei on the 28th, Japan's stock market has seen repeated intraday surges and drops centered on AI and semiconductor-related stocks. The intraday volatility—calculated by dividing the difference between the intraday high and low by the previous session's close—was 2.1% in May, 2.6% in June, and 2.5% in July, topping 2% for three straight months.
It was the first time since September 2008 to April 2009, right after the global financial crisis, that intraday volatility exceeded 2% for three consecutive months. The Nikkei said a key feature is that high volatility has persisted even without a particular external shock, unlike during the COVID-19 spread or the 2024 sell-off.
The Nikkei pointed to Korea's stock market as one of the main factors behind the volatility. With no time difference between Japan and Korea and most trading hours overlapping, moves in Korea's market are easily and immediately reflected in Japan. In particular, as trading in single-stock leveraged exchange-traded funds (ETFs) based on Samsung Electronics and SK hynix has picked up, volatility in domestic semiconductor stocks has grown, and Japanese AI and semiconductor names, including Kioxia Holdings, have increasingly moved in tandem, it said.
The Nikkei also labeled the downturn that began late last month with a supply-demand deterioration tied to leveraged ETFs in Korea as "Korea-led stock drop, part 1," and the recent plunge in Korean AI-related stocks amid rising earnings concerns for SK hynix and Samsung Electronics following the listing of Chinese memory maker Changxin Memory Technologies (CXMT) as "Korea-led stock drop, part 2."
Jiji Press also said that "the linkage between the KOSPI and the Nikkei is strengthening," analyzing that the sharp drop in Korea's market contributed to a wider decline in Japan.
On the Tokyo market the same day, the Nikkei closed at 62,364.92, down 2,566.27 points (3.95%) from the previous session. The intraday loss at one point exceeded 3,000 points, and the index briefly fell below the 62,000 level for the first time since late May.
Losses were pronounced among AI and semiconductor-related names. Japanese semiconductor company Kioxia Holdings at one point plunged to near its lower limit during trading, dropping its market cap ranking from No. 1 to No. 7, while semiconductor equipment makers Advantest and Tokyo Electron each fell more than 10%.
The Nikkei also cited an increase in short-term trading by individual investors as a driver of volatility. Margin buying balances at Japanese securities firms surpassed 6 trillion yen, a record high. Yamafuji Shota, an analyst at Tokai Tokyo Intelligence Lab, said, "Active margin trading in high-price Kioxia shares is translating into elevated volatility for the Nikkei average."
The Nikkei said high volatility can offer profit opportunities for short-term investors, but it could also increase the risk of valuation losses for individual investors, potentially leading to reduced investment or an exit from the market.