The Nikkei Index in Japan relinquished earlier gains to close lower on Tuesday. While positive economic data prompted investors to buy economy-sensitive stocks, heavyweight technology shares continued to decline, following the overnight downturn of their U.S. counterparts. The Nikkei Index fell 0.44% to close at 60,550.59 points, marking its fourth consecutive day of losses, after having risen more than 1% during the session. The TOPIX gained 0.63% to close at 3,850.67 points. Chip-making equipment manufacturer Tokyo Electron dropped 4.26%, becoming the biggest decliner among Nikkei components. Advantest fell 3.29%, SoftBank Group declined 4.15%, and Kioxia slipped 3.27%. Value stocks rose, buoyed by economic data. The data showed that Japan's economic growth in the first quarter exceeded expectations, thanks to robust exports and consumption. The TOPIX Value Index advanced 1.02%, while the Growth Index rose a mere 0.2%. "The market is trying to gauge how long the decline in U.S. tech stocks will persist," said Yugo Tsuboi, chief strategist at Daiwa Securities. "Investors also want to wait for Nvidia's earnings report." The Japanese economy accelerated its growth in the first quarter of 2026, providing grounds for another interest rate hike as conflict in the Middle East heightens inflation risks. Preliminary government data released on Tuesday showed that Japan's real gross domestic product (GDP) for January-March grew 0.5% from the previous quarter. This growth rate exceeded the 0.2% increase in the October-December quarter of last year and surpassed economists' forecast of 0.4%. The growth was driven by a recovery in exports, due to eased tariff concerns, and government spending, as stimulus measures from Prime Minister Sanae Takaichi began to take effect. On an annualized basis, Japan's first-quarter economic growth was 2.1%. This robust performance may bolster market expectations for an imminent rate hike by the Bank of Japan. With persistent tensions in the Middle East keeping oil prices elevated, there are concerns that domestic inflation in Japan could rise too rapidly. Many economists and investors anticipate that the Bank of Japan will raise the policy rate from 0.75% to 1.0% at its next meeting in June, despite the risk that price pressures could dampen household spending, squeeze corporate profits, and subsequently drag on economic activity.
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