TOKYO: Japan’s Nikkei share average edged lower on Wednesday amid a strengthening yen and caution ahead of earnings from AI darling Nvidia later in the day.

The Nikkei ended the morning session down 0.23% at 38,199.52, continuing its narrow fluctuations since mid-month anchored around the psychological 38,000 mark. Of the index’s 225 components, 155 fell, 65 rose, while five were trading flat.

The broader Topix slipped 0.08%.

Market expectations for Nvidia’s financial report are sky-high, and anything short of a stellar forecast from the chipmaker could jolt investor confidence in the AI-fuelled rally.

“The bar is extremely high, and depending on the result, stocks could swing wildly,” which is keeping investors largely sidelined ahead of Nvidia’s announcement, said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

Japanese semiconductor-sector shares were broadly mixed, with chip-testing equipment maker and Nvidia supplier Advantest rising more than 3% to be the Nikkei’s biggest gainer by index points.

At the same time, chip-testing machinery giant Tokyo Electron was the biggest drag on the index, down 1.77%.

The yen extended overnight gains in early trade to 143.69 per dollar, but then reversed course to be about 0.26% weaker at 144.34 as of 0230 GMT. On Aug. 15, it traded closer to 150 per dollar.

Japan’s Nikkei falls as yen firms, chip-related shares top losers

A stronger yen reduces the value of overseas sales, while also making stocks more expensive for overseas investors.

“Even though the yen is weakening a little now, the trend is for gradual yen appreciation, which is a weight on stocks,” Ichikawa said.

Automaker shares were mixed, with Nissan down 1.05% and Mazda sliding 1.03%, while Toyota Motor rallied 3.4% and Honda advanced 0.67%.

Rakuten Group led percentage gainers on the Nikkei, jumping more than 9% following share price target upgrades at Morgan Stanley MUFG Securities and Citi.