Japanese and South Korean equities diverged sharply on Tuesday, with Tokyo shares on the back foot amid lingering fears of further yen-buying intervention, while Seoul's market split between a wobbly Kospi and a surging Kosdaq driven by heavy institutional buying.

Japan's Nikkei share average fell 0.11% by the midday recess, with the broader Topix sliding 0.26%, as investors remained cautious ahead of Toyota Motor's quarterly results due later in the day. The decline follows a sharper drop on Monday, when the Nikkei lost nearly 1% after Japan's Finance Ministry confirmed that Tokyo and Washington had conducted coordinated yen-buying intervention — a rare step in which authorities sell dollars and buy yen to support the currency — adding that authorities would not hesitate to act again if needed.

The coordinated intervention remains the dominant theme for Japanese equities. Exporters face renewed pressure from a stronger yen, even as markets stay alert to the prospect of further official action should the currency weaken again. The dollar traded at 157.70 yen, having moved sharply in the yen's favour from around 163 following the intervention. Continued caution suggests investors are pricing in the possibility of repeated action rather than a one-off move. A stronger yen weighs on the earnings outlook for Japan's export-heavy blue chips by reducing the value of overseas revenue when converted back into local currency.

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Against this backdrop, Toyota Motor, the world's largest automaker, is expected to report a fifth consecutive quarterly decline in operating profit, weighed down by softer vehicle sales and rising costs. The Toyota results carry added weight for the broader market given the company's outsized role in the Nikkei and Topix indices. Japanese media (Kyodo) separately reported that Toyota plans to temporarily trim back operations at its Tahara plant between August 17 and 31. Japan's AI-linked heavyweight stocks traded mixed, and overall market breadth on the Nikkei was negative, reflecting the cautious tone across the session.

In Seoul, the Kospi had a volatile session. The benchmark index opened up almost 1.5% at 6,351 before slipping as much as 0.26% lower to 6,241 at one stage ahead of midday. The pullback came as concerns over AI-related spending outweighed support from data showing July inflation slowed more than expected — a combination that left the index struggling to hold its early gains.

The Kosdaq, South Korea's growth-oriented secondary exchange that is home to smaller-cap and technology-focused companies, told a very different story, surging more than 5% during the session. The Korea Exchange activated a buy-side-only trading curb, which pauses programmatic trading, at 10:47:51 local time, as heavy institutional demand drove the rally. Institutions recorded net buying of KRW 354 billion. This marked the third consecutive trading day the buy-side curb has been triggered — following activations last month and again in the prior session — underscoring a sustained pattern of concentrated buying pressure in Korea's smaller-cap index even as the broader Kospi struggled for direction.