TOKYO: Japan’s Nikkei share average declined on Thursday, as investors sold off chip stocks before Taiwan Semiconductor Manufacturing’s quarterly earnings report, a key demand test for the sector.

The Nikkei fell 0.6% to 38,944.93 by the midday break, while the broader Topix ticked down 0.02% to 2,690.16.

Major technology stocks fell for a second session and dragged the Nikkei lower, after ASML’s cut to annual sales forecast over weak non-AI chip demand sent chip-related shares tumbling in the previous session.

Investors have now taken positions carefully ahead of Taiwan Semiconductor Manufacturing Co’s third-quarter results due later in the day.

TSMC, the dominant producer of advanced chips used in artificial intelligence applications, is expected to report a 42% leap in profit, but a disappointing report could spark more selling.

The firm’s quarterly earnings call will start at 0600 GMT.

Chip-making equipment giant Tokyo Electron declined 3% and chip-testing equipment maker Advantest fell 2.6% to become the biggest drags on the Nikkei.

Chip-making device supplier Disco was down 2.3% ahead of its earnings results later in the day.

Japan’s Nikkei firms on Fast Retailing, chip share gains

Manufacturers will start reporting their earnings in earnest starting next week, something investors are also likely eying, said Nomura strategist Maki Sawada.

“It feels like (today’s market moves) are mainly adjustments to positions in anticipation of those announcements,” the strategist said.

Gains by auto stocks stood out as the yen struggled not far off the 150-per-dollar level in a boost for exporters.

Subaru Corp rose about 3%, Nissan Motor gained 1.8% and Toyota Motor climbed 1.5%. Exporters tend to benefit from a weaker domestic currency when overseas earnings are repatriated.

Financials rose after their US peers helped Wall Street close higher on Wednesday. Mitsubishi UFJ Financial Group was up 1.9%.