Nikkei Falls as Toyota, Banks Lift TOPIX

That pressure is hitting a market that had been heavily concentrated in a narrow group of growth names. Advantest dropped more than 14%, Kioxia Holdings fell over 13%, and Tokyo Electron, Ibiden and TDK also weakened, dragging the benchmark lower even as most stocks on the Tokyo Prime market rose.

The divergence matters for investors because it shows the Japanese rally is no longer being driven by a single trade. The TOPIX rose 1.16% to 3,940.39, and 72% of Prime-listed shares advanced, underscoring that money is moving into domestically focused and cheaper cyclicals rather than the expensive AI complex that had powered the market earlier in the year.

Toyota Motor was a standout beneficiary, jumping more than 16% after raising its earnings outlook and boosting shareholder returns. Autos, property and rubber stocks all gained, while the broader Prime market index also finished higher, a sign that earnings-driven stock picking is replacing broad momentum buying.

The move also lines up with falling oil prices, which traders say may ease inflation worries and support domestic demand shares. Monex Securities strategist Takaaki Yoshino said AI and semiconductor names are likely to remain vulnerable while investors rotate toward internal-demand and value stocks.

For now, the setup favors a more selective market, with AI leaders under pressure and dividend-rich, earnings-backed stocks drawing bids. The next test for the index rotation will come from U.S. tech demand signals, further policy headlines on AI and the next round of Japanese earnings updates.