Nikkei posts sharp fall on U.S. chip slump, Mideast fears

2026-08-19

U.S. chip slump and Middle East worries

In Tokyo trading on the 19th, the Nikkei Average fell sharply for a second straight session, closing down 2,134.31 points, or 3.16%, at 65,326.42. At one point, the decline exceeded 2,300 points. After U.S. semiconductor stocks fell on the 18th, AI- and chip-related names such as SoftBank Group and Advantest were sold, dragging down the index. In addition to uncertainty over the outlook for the Middle East, concern also spread that prolonged price rises would damp consumer spending.

Rising global rates and higher oil

Behind the steep declines over consecutive days were also worries about higher interest rates globally. In the U.S. stock market on the 18th, the Philadelphia Semiconductor Index (SOX), which comprises major chip-related names, fell nearly 5%. In Tokyo as well, AI- and chip-related shares including Tokyo Electron and Kioxia Holdings tumbled across the board, and the Nikkei slipped below the key 66,000 level. Over the two days of the 18th and 19th, the drop came to nearly 4,000 points.

There is no sign yet that tensions between the United States and Iran are easing. Iran's parliamentary speaker Mohammad Bagher Ghalibaf said on the 18th that the Strait of Hormuz would not be reopened until the United States fulfills its promises. U.S. President Donald Trump also posted on social media that there were 'no ongoing or planned talks or dialogue with Iran' that day, effectively collapsing the ceasefire agreement reached in June. U.S. crude futures, which briefly fell below $70 a barrel in July, have remained elevated in the $85 range.

Growing concern over weaker consumption

One factor behind rising global interest rates is concern over the deterioration of U.S. public finances. In a poll released on the 17th by Reuters and Ipsos, Trump's approval rating stood at 33%, marking a new low for his second administration. Having treated military action against Venezuela as a 'success story', the United States took a hard line toward Iran as well, but the prolonged fighting is weighing on his approval ratings.

Masayuki Toshida, senior market analyst at Rakuten Securities Economic Research Institute, said speculation that Trump will roll out a large-scale economic stimulus package to recover approval ratings ahead of the midterm elections in November is adding upward pressure on rates. If interest rates keep rising, the high valuation of AI and chip stocks with elevated price-to-earnings ratios is likely to come into focus, creating a headwind for Japanese equities, he said.

There is also a view that prolonged high oil prices will hurt household spending in Japan and become a burden on the stock market. According to preliminary GDP data for April-June 2026 released by the Cabinet Office on the 17th, private consumption turned negative for the first time in eight quarters. Noriaki Kiuchi, executive economist at the Nomura Research Institute, expects that in July-September, higher prices for crude-related goods traded between companies will begin to feed fully into consumer goods, causing 'private consumption to deteriorate further'.

Reflecting the softness in spending due to higher prices, the Tokyo Stock Exchange's retail sector index fell for a sixth consecutive day on the 19th. Fast Retailing, a leading retail stock, dropped for a seventh straight session and at one point hit 74,260 yen, its lowest level since May 22. That is more than 10% below the stock-split-adjusted all-time high of 88,690 yen reached on July 8.

Kiuchi estimated the impact on the Japanese economy at different levels of U.S. crude futures prices, assuming a dual blockade of the Strait of Hormuz and the Bab el-Mandeb Strait, an alternative route for crude and other supplies, lasting from several months to more than half a year. He projected that if the average price in 2026 were $90 a barrel, real GDP would be pushed down 0.17%, and if it were $100, it would be lowered by 0.26%. If crude futures remain elevated, Kiuchi said, 'it would deal a significant blow to the Japanese economy'.

For the Nikkei Average to try to recover from here, it still needs to absorb many risk factors.

Enjoyed this article? Share it with your network!