TOKYO / RankWire.AI / – On Monday, Japanese equities experienced significant downward pressure as the Nikkei 225 declined nearly 2% in early trading. The index dropped 1.97% to close at 65,096.63, with an intraday low of 64,832.10. A primary factor behind the decline was the weakness in technology stocks, driven by investor reactions to rising bond yields and expectations of tighter interest rate policies. Meanwhile, the broader Topix index also weakened initially, falling 0.84% to 4,111.71. Simultaneously, Japanese government bond yields increased, adding further pressure to rate-sensitive sectors within the stock market.
The sharp selloff in the morning eased notably before the market’s close. The Nikkei ended the day at 66,311.93, down 93.63 points, or 0.14%, after bouncing back from its session low. The Topix recovered from its earlier decline, finishing at 4,156.29 with a 0.23% gain. During the trading session, market breadth also improved, with 131 stocks advancing, 91 declining, and three remaining unchanged among Nikkei constituents. Final figures indicated a much smaller loss than the steep drop recorded shortly after the market opened.
Japanese government bond markets remained a major focus for investors. The benchmark 10-year yield climbed to 2.95%, reaching its highest level since 1996. The two-year yield increased to 1.73%, its highest point since April 1995. Short-term bond yields tend to closely track expectations for central bank policies. Rising yields generally lead to falling bond prices. These movements occurred amid increased expectations of higher interest rates in both Japan and the United States.
Japanese bond yields reach multi-decade peaks
Much of the early selling pressure was absorbed by technology stocks, following weakness in U.S. semiconductor shares at the end of last week. The Nikkei’s price-weighted structure gives significant influence to large technology companies in daily index fluctuations. As the session progressed, other sectors performed better, helping the index recover. Bank shares also showed relative strength as domestic yields increased. The Topix outperformed the Nikkei by the close, reflecting broader support outside the leading technology firms.
Japanese equities faced renewed downward pressure on Tuesday, with the Nikkei falling approximately 1% to 65,646.57 during trading. Semiconductor-related stocks again ranked among the weakest sectors. Elevated global bond yields and energy prices persisted, with Brent crude trading above $91 a barrel amid renewed Middle East conflict. The yen hovered near 160 per dollar, keeping currency movements in the spotlight. Since Japan primarily imports crude oil, fluctuations in global energy prices are crucial for domestic costs and inflation.
Market focus remains on interest rate policies in Tokyo
The Bank of Japan maintained its short-term policy rate close to 1%, after raising it in June and holding steady in July. The next scheduled monetary policy meeting will take place on September 17 and 18. The Federal Reserve also emphasized the importance of inflation in its recent policy statements. On August 28, its chair underscored that U.S. inflation continued to remain above the Fed’s 2% target. Expectations for higher borrowing costs strengthened after these remarks, while Japanese yields stayed near levels not seen in three decades.
Monday’s closing data showed that the Nikkei’s early 1.97% decline did not persist throughout the entire trading day. The index recovered most of its losses, ending only 0.14% lower, with the Topix closing higher. The following day, another decline occurred as chip stocks weakened and bond yields stayed elevated. The two sessions highlighted significant volatility across Japanese stocks, government debt, and currency markets. As September unfolds, interest rates, inflation, energy costs, and currency movements remain pivotal in shaping Tokyo’s trading landscape.