Stocks draw funds back as rates fall, lifting automakers and builders

2026-08-20

Buybacks in oversold names

At the Tokyo stock market on the 20th, the Nikkei average rose toward the morning close, finishing up 656.07 yen from the previous day at 65,982.49 yen. Long-term yields in Japan and the United States fell after the U.S. Treasury expanded its bond buyback program. Funds flowed back into stocks, led by names that had been sold heavily the previous day.

On the previous day, shares fell broadly, led by artificial intelligence and semiconductor stocks, as global bond yields climbed, and the Nikkei average dropped more than 2,000 yen. For the week, it had fallen by about 3,400 yen through the previous day, and mechanical selling tied to the index's decline added to the pressure, increasing the number of stocks sold without a direct link to earnings fundamentals. Takahiro Takei, a strategist at Resona Holdings, said of the day's trading that 'dip buying is coming into oversold names.'

Auto and construction lead

Automobile stocks were among the most actively bought from the start of the session. Toyota Motor briefly rose 4.14% from the previous day, while Nissan Motor gained as much as 6.64%. The Nikkei's sector index for automakers climbed more than 3%, the second-best performance among all 36 sectors. In general, automakers are seen as benefiting from a weaker yen and stronger dollar. In the Tokyo foreign exchange market on the 20th, the dollar traded in the mid-158 yen range, a stronger yen move from the previous day, but buying continued.

Even though the yen strengthened, it remained weaker than the exchange-rate assumptions companies use in their earnings forecasts. Trump administration tariff policy also provided a clue. Reuters reported that the Trump administration is expected to lower tariffs on Canadian-made cars. Kazuaki Shimada, chief strategist at IwaiCosmo Securities, said expectations for improving profit margins at individual manufacturers had spread. Construction stocks, which had sunk to year-to-date lows despite strong results in the April-June 2026 quarter, also rose, with Taisei briefly up about 3%.

Rate concerns remain

Even so, uncertainty over the outlook for interest rates remains strong, and the broader market's upside is still limited. Buying has not yet spread to AI and semiconductor stocks; while Kioxia Holdings and SoftBank Group advanced, Tokyo Electron fell. A Japan equity sales executive at a British securities firm said, 'There is growing opinion that AI-related stocks will eventually be re-rated based on earnings, and more investors want to buy on that view, but actual buying is still limited.' In the U.S. stock market the previous day, the Philadelphia Semiconductor Index, which is composed of major chip-related shares, fell 2.11%.

Rising long-term interest rates tend to be a headwind for growth-oriented tech stocks because they raise the discount rate used to calculate the present value of future corporate earnings. On the 19th, the U.S. Treasury announced plans to increase bond buybacks. On expectations that bond supply and demand would tighten, long-term U.S. yields fell in the bond market and bond prices rose.

Naka Matsuzawa, chief strategist at Nomura Securities, said, 'It is good that officials are showing a commitment to interest rates, but this is a supply-demand measure, and the fundamental factors driving rates higher remain.' Buying back stocks sold on rate concerns has been limited, and a nervous market is likely to continue as investors watch the relative appeal of stocks versus bonds.

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