TOKYO / RankWire.AI / – Japanese equities experienced sharp declines on Monday, with the Nikkei 225 dropping nearly 2% in early trading. The index decreased 1.97% to close at 65,096.63 and intraday fell to a low of 64,832.10. Technology shares were at the forefront of the decline as investors responded to rising bond yields and expectations of tighter interest rate policies. The broader Topix also experienced early weakness, falling 0.84% to 4,111.71. Meanwhile, Japanese government bond yields increased, exerting additional pressure on interest rate-sensitive sectors of the stock market.
The morning selloff considerably eased before markets closed. The Nikkei finished at 66,311.93, down just 93.63 points, or 0.14%, after bouncing back from its session low. The Topix ended at 4,156.29, posting a gain of 0.23% and reversing earlier declines. Market breadth also improved during the day, with 131 stocks rising, 91 falling, and three remaining unchanged among Nikkei constituents. The closing figures reflected a much smaller loss compared to the steep drop observed shortly after trading commenced.
Investors kept a close watch on Japan’s government bond market. The 10-year benchmark yield climbed to 2.95% on Monday, reaching its highest point since 1996. The two-year yield increased to 1.73%, the highest since April 1995. Short-term bond yields tend to track market expectations for central bank monetary policy. Rising yields also lead to declining bond prices. These movements coincided with heightened expectations for interest rate hikes in both Japan and the United States.
Japanese bond yields surge to multi-decade peaks
Tech stocks bore the brunt of early declines, partly driven by weakness in U.S. semiconductor shares at the end of last week. The Nikkei’s price-weighted structure means that several large technology firms significantly influence daily index movements. As the session progressed, other sectors fared better, helping the index recover. Banking stocks showed resilience as domestic yields increased. By the close, the Topix outperformed the Nikkei, reflecting broader support beyond the largest technology names.
Japanese equities faced renewed downward pressure on Tuesday, with the Nikkei falling roughly 1% to 65,646.57 during the trading session. Semiconductor-related stocks again ranked among the weakest. Elevated global bond yields and energy prices persisted. Brent crude traded above $91 a barrel amid renewed Middle East conflict. The yen hovered near 160 per dollar, maintaining currency movement as a key focus. Since Japan imports most of its crude oil, fluctuations in energy prices significantly impact domestic costs and inflation.
Focus remains on interest rate developments in Tokyo markets
The Bank of Japan held its short-term policy rate near 1% after raising it in June and leaving it unchanged in July. Its upcoming monetary policy meeting is scheduled for September 17 and 18. The Federal Reserve also emphasized inflation as a central element in its latest policy statement, with Chair comments on August 28 highlighting that U.S. inflation remains above its 2% target. Expectations for higher borrowing costs strengthened following these remarks, while Japanese yields stayed near three-decade highs.
Monday’s closing data showed the Nikkei’s initial 1.97% decline was not sustained through the full trading session. The index recovered most of its losses to close only 0.14% lower, with the Topix ending higher. The following day, however, another decline occurred as chip stocks weakened and bond yields remained elevated. These two sessions underscored significant volatility across Japanese equities, government debt, and the yen. Key influences on trading as September begins include interest rates, inflation, energy prices, and currency movements.