The Nikkei rebound suggests the worst selling pressure may be over, but AI semiconductors have not yet returned to the main trend

Overview

This report discusses whether the sharp rebound in the Japanese equity market on July 21 means the worst phase is over. The core view is that the recent pullback was driven more by changes in the AI narrative and momentum traders’ repositioning than by downward earnings revisions; CTA futures stop-loss selling pressure is easing, but high-beta/high-momentum stocks related to AI semiconductors in Japan and Korea have not yet re-emerged as the market’s dominant force.

Core views

The report argues that Japanese equity sentiment is already close to zero, while TOPIX 12-month forward EPS has not collapsed, so continued deterioration in sentiment would require more negative factors. If Nikkei futures fall below 64,600 again, CTA deleveraging could be triggered once more, but a substantial portion of the long positions accumulated since May may already have been unwound. KOSPI 200 futures also triggered stop-loss selling after falling below 1,100, but most of the long positions built since March have already been removed. In cash equities, signs are strengthening that selling pressure in AI semiconductor- and AI infrastructure-related high-beta/high-momentum stocks has peaked, but buying breadth and the proportion outperforming the TOPIX 500 are still insufficient.

Analysis framework

The report uses Japanese and Korean equity sentiment, changes in TOPIX 12-month forward EPS, CTA positioning in Nikkei and KOSPI 200 futures, the performance of momentum and beta groups within TOPIX 500 and KOSPI 200 stocks, and the rebound breadth and selling-pressure indicators of a basket of high residual SOX beta stocks to assess whether the market has bottomed.

Methodology notes

• Quantitative stock selectionHigh Momentum/High Beta vs Low Momentum/Low Beta long-short performance

  Stock groups selected based on 12-month minus 1-month price returns and beta

  The sample includes TOPIX 500 and KOSPI 200. At each month-end, stocks in the top 30% or bottom 30% by price momentum and beta are selected, and long-short performance and relative excess returns versus the market are used to judge whether high-risk, high-momentum stocks have regained leadership.

• Positioning and technical flowsCTA futures stop-loss position monitoring

  Observing CTA deleveraging pressure around key levels in Nikkei and KOSPI 200 futures

  The report focuses on around 64,600 for the Nikkei and around 1,100 for the KOSPI 200 to assess whether another break below these levels could trigger further unwinding of CTA long positions.

• Theme sensitivityResidual SOX Beta

  SOX sensitivity after removing TOPIX beta

  The report uses high residual SOX beta to identify the "June-hit Old Winners" more closely tied to semiconductor and AI trends, and uses rebound breadth, 5-day outperformance breadth, and the proportion of new lows to judge whether selling pressure is receding.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Nikkei 225 futures

  A direct vehicle for CTA stop-loss selling pressure and market beta risk

  Strengths

  The rebound to around 66,000 shows that short-term forced selling pressure has eased.

  Weaknesses

  If it falls below 64,600 again, it could still trigger renewed CTA deleveraging.

  Comparison

  Compared with cash equities, futures selling pressure was not the main driver of the July decline, but it can amplify beta selling pressure.

  Risks

  External shocks or another break below key index levels could cause position unwinding to resume.

• TOPIX 500 High Beta/High Momentum stocks

  The core observation basket for Japanese market risk appetite and the recovery of previous winners

  Strengths

  They rebounded from the lows around July 17, indicating that a technical recovery has already emerged.

  Weaknesses

  The Old Winners hit hard in June still lag the broader Old Winners, and have not yet confirmed a return to leadership.

  Comparison

  Short covering on the low-beta/low-momentum side is close to complete, but active buying back of high-beta/high-momentum stocks remains insufficient.

  Risks

  If buying breadth does not expand, the rebound may remain only a technical recovery.

• AI semiconductor-sensitive Japanese stocks

  The main transmission sector through which changes in the global AI narrative affect the Japanese equity market

  Strengths

  Short-term rebound breadth has improved, while selling pressure and the proportion of stocks making new lows have declined.

  Weaknesses

  5-day outperformance breadth relative to the TOPIX 500 remains low, and stocks such as Ibiden, Kioxia, and Yaskawa Electric continue to weigh on the basket.

  Comparison

  High chip-sensitivity stocks still significantly lag low-sensitivity stocks.

  Risks

  If earnings from global AI leaders or the AI narrative continue to weaken, this theme could come under renewed pressure.

• KOSPI 200 futures

  An indicator for Korean equity sentiment and Asian semiconductor trading pressure

  Strengths

  The report believes that most of the long positions accumulated since March have already been unwound, so the worst selling pressure may be over.

  Weaknesses

  Korean equity sentiment is still deteriorating significantly.

  Comparison

  Similar to Japan, forced CTA deleveraging pressure is easing, but the recovery in Korean sentiment is weaker.

  Risks

  If additional shocks emerge, they could again trigger simultaneous declines in the index and futures positioning.

Key data

• Nikkei rebound level66,000The report states that the Nikkei rebounded to around 66,000 on July 21, and Nikkei 225 futures also recovered to the 66,000 level.
• CTA risk level for Nikkei futures64,600If the index falls below 64,600 again, CTA position unwinding could re-emerge.
• KOSPI 200 futures stop-loss trigger zone1,100The report states that KOSPI 200 futures triggered stop-loss selling when they fell below 1,100, but most long positions since March have already been unwound.
• J.P. Morgan global equity research rating distributionOverweight 53%; Neutral 36%; Underweight 12%Disclosure table data as of July 4, 2026.
• JPMS equity research coverage rating distributionOverweight 51%; Neutral 37%; Underweight 12%The disclosure table shows the corresponding investment banking client proportions were 95%, 92%, and 87%, respectively.

Impact & implications

For investors, the report implies that short-term systematic selling pressure is easing, and the market is shifting from "risk of continued decline" to "waiting for reversal confirmation." The resilience of Japanese equity earnings expectations supports stabilization in risk appetite, but for AI semiconductors, high-beta, and high-momentum stocks to become the main trend again, broader buying, more stocks outperforming the TOPIX 500, and external confirmation from earnings of global AI-related companies are still needed.

Risks

• If the Nikkei falls below 64,600 again, CTA unwinding in Nikkei futures may resume.
• If the KOSPI 200 cannot stabilize around 1,100, Korean equity sentiment may continue to deteriorate.
• If the AI semiconductor narrative weakens again, Japanese memory semiconductor and high-SOX-sensitivity stocks will remain vulnerable to shocks.
• Insufficient rebound breadth in high-beta/high-momentum stocks could prevent the technical rebound from turning into sustained outperformance.
• If earnings from major global AI-related companies disappoint, the market’s transition from wait-and-see to bullish could be interrupted.

What to watch

• Whether the Nikkei Index and Nikkei 225 futures can hold above 64,600.
• Whether KOSPI 200 futures can stabilize again around 1,100.
• Whether excess returns of June-hit Old Winners versus the broader Old Winners within the TOPIX 500 improve.
• Whether 5-day outperformance breadth of high residual SOX beta stocks rises to a broader level.
• Whether drags such as Ibiden (4062.JT), Kioxia (285A.JT), and Yaskawa Electric (6506.JT) turn into support.
• Whether earnings from global AI-related leading companies improve the AI semiconductor narrative.