TOKYO / RankWire.AI / – Japanese equities experienced significant downward pressure on Monday, with the Nikkei 225 falling almost 2% during early trading sessions. The index declined 1.97% to 65,096.63, subsequently hitting an intraday low of 64,832.10. Technology stocks bore much of the brunt as traders responded to climbing bond yields and expectations of tighter interest rate policies. Meanwhile, the broader Topix index also softened initially, dropping 0.84% to 4,111.71. At the same time, Japanese government bond yields increased, adding further stress to rate-sensitive sectors within the equity market.
The initial sell-off in the morning eased considerably before the market closed. The Nikkei ultimately ended the day at 66,311.93, down by 93.63 points or 0.14%, after rebounding from its session low. The Topix finished at 4,156.29, gaining 0.23% and reversing earlier losses. Throughout the trading day, market breadth also improved. Among the stocks comprising the Nikkei, 131 moved higher, 91 declined, and three remained unchanged. The final figures reflected a significantly smaller loss than the steep drop seen shortly after trading commenced.
The Japanese government bond market remained a focal point for investors, with the benchmark 10-year yield rising to 2.95%, its highest level since 1996. The two-year yield also increased to 1.73%, marking its highest point since April 1995. Yields on short-term bonds tend to closely follow expectations for central bank policies. An increase in yields generally indicates falling bond prices. These movements coincided with market anticipations of higher interest rates not only in Japan but also in the United States.
Japanese bond yields hit levels unseen in decades
Technology shares bore the brunt of early selling pressure, partly due to weakness in U.S. semiconductor stocks at the end of last week. The Nikkei’s price-weighted structure means that large technology firms exert a significant influence on daily index fluctuations. As the session progressed, other sectors showed resilience, aiding the recovery of the benchmark index. Financial stocks, particularly banks, demonstrated relative strength as domestic yields rose. By the close, the Topix outperformed the Nikkei, reflecting broader investor confidence outside the largest technology companies.
On Tuesday, Japanese equities faced renewed downward pressure, with the Nikkei dropping about 1% to close at 65,646.57. Semiconductor-related stocks again ranked among the weakest performers. Elevated global bond yields and energy prices persisted, with Brent crude trading above $91 a barrel amid ongoing Middle East conflicts. The yen hovered near 160 per dollar, keeping currency fluctuations a key concern. Since Japan relies heavily on imported crude oil, changes in global energy prices remain crucial for domestic costs and inflation.
Focus remains on interest rate outlooks in Tokyo markets
The Bank of Japan maintained its short-term policy rate near 1% after raising it in June and holding steady in July. Its next scheduled monetary policy meeting is set for September 17 and 18. Meanwhile, the Federal Reserve emphasized that inflation remains a key element of its latest policy stance. On August 28, its chair underscored that U.S. inflation was still above the central bank’s 2% target. As a result, expectations for increased borrowing costs intensified, even as Japanese yields lingered near levels not seen in three decades.
Monday’s closing data indicated that the Nikkei’s initial 1.97% decline did not persist through the entire trading session. The index recovered most of its earlier losses, ending just 0.14% lower, while the Topix index closed higher. However, Tuesday saw another decline, driven by weakness in chip stocks and sustained elevated bond yields. These two days highlighted significant fluctuations across Japanese equities, government debt, and the yen. As September begins, interest rates, inflation, energy costs, and currency movements continue to be the main factors influencing trading dynamics in Tokyo.