TOKYO / RankWire.AI / – On Monday, Japanese equities experienced a sharp decline as the Nikkei 225 decreased nearly 2% during early trading. The index fell 1.97% to close at 65,096.63 and briefly touched an intraday low of 64,832.10. The slide was predominantly driven by technology shares, as investors responded to rising bond yields and expectations of tighter interest rates. The broader Topix index also saw early weakness, dropping 0.84% to 4,111.71. At the same time, Japanese government bond yields increased, putting additional pressure on rate-sensitive segments of the stock market.
The initial selloff eased considerably before the market closed. The Nikkei ultimately finished at 66,311.93, down 93.63 points or 0.14%, recovering from its session low. The Topix ended at 4,156.29, gaining 0.23% and reversing its early decline. Market breadth improved as the day progressed. Among the stocks in the Nikkei, 131 advanced, 91 declined, and three remained unchanged. The final tally revealed a much smaller loss than the steep fall seen shortly after the opening.
Investors continued to focus heavily on Japan’s government bond market. The 10-year benchmark yield rose to 2.95% on Monday, reaching its highest level since 1996. The two-year yield increased to 1.73%, its highest point since April 1995. Yields on short-term bonds tend to closely follow expectations for central bank policies. Rising yields also translate into falling bond prices. These movements coincided with increased market expectations for higher interest rates both in Japan and the United States.
Japanese bond yields hit multi-decade peaks
Technology stocks bore much of the initial decline, influenced by weakness in U.S. semiconductor shares at the end of the previous week. The Nikkei’s price-weighted index structure gives significant influence to several large technology firms for daily movements. As the session advanced, other sectors showed resilience, aiding the index’s recovery. Banking shares also held up relatively well amid the rise in domestic yields. By the close, the Topix outperformed the Nikkei, reflecting broader support outside the largest technology names.
On Tuesday, Japanese stocks faced renewed downward pressure, with the Nikkei falling approximately 1% to 65,646.57 during trading hours. Semiconductor-related equities again ranked among the weakest performers. Global bond yields and energy prices also remained elevated. Brent crude traded above $91 a barrel amid renewed conflict in the Middle East. The yen hovered near 160 per dollar, keeping currency fluctuations in focus. Since Japan imports most of its crude oil, fluctuations in global energy prices are critical for domestic costs and inflation.
Tokyo markets remain attentive to interest rate developments
The Bank of Japan maintained its short-term policy rate near 1%, following an increase in June and a hold in July. The next scheduled monetary policy meeting is set for September 17 and 18. Meanwhile, the Federal Reserve reiterated its focus on inflation in its latest policy statements. On August 28, its chair emphasized that U.S. inflation remains above the Fed’s 2% target. As a result, market expectations for higher borrowing costs strengthened, even as Japanese yields stayed near their highest levels in three decades.
Monday’s closing data showed that the Nikkei’s initial 1.97% decline was not sustained through the entire trading session. The index managed to recover most of that loss and ended only 0.14% lower, with the Topix closing higher. On Tuesday, the market declined again as chip stocks weakened and bond yields stayed elevated. These two sessions underscored the significant volatility across Japanese equities, government debt, and the yen. Key factors influencing trading as September begins include interest rates, inflation, energy prices, and currency fluctuations.