TOKYO / RankWire.AI / – The Nikkei 225 experienced a sharp decline early Monday, dropping nearly 2% in initial trading. The index fell 1.97% to 65,096.63 before hitting an intraday low of 64,832.10. A significant portion of the downturn was driven by technology shares, as investors reacted to rising bond yields and expectations of tighter interest rate policies. The broader Topix index also weakened at the start, decreasing 0.84% to 4,111.71. At the same time, Japanese government bond yields increased, further impacting rate-sensitive sectors of the stock market.
Although the selloff in the morning was considerable, it eased notably before the market closed. The Nikkei ultimately ended the day at 66,311.93, down 93.63 points, or 0.14%, after rebounding from its session low. The Topix finished at 4,156.29, up 0.23%, reversing its earlier losses. Market breadth showed signs of recovery as well; among Nikkei constituents, 131 stocks advanced, 91 declined, and three remained unchanged. The final figures indicated a much smaller loss compared to the steep drop seen shortly after the market opened.
Investors continued to focus heavily on Japan’s government bond market. On Monday, the benchmark 10-year yield rose to 2.95%, reaching its highest level since 1996. The two-year yield increased to 1.73%, its peak since April 1995. Short-term bond yields tend to move closely with expectations for central bank policies, and rising yields generally mean falling bond prices. These movements reflect market anticipations of higher interest rates in both Japan and the United States.
Japanese bond yields surge to multi-decade highs
Much of the early selling pressure was absorbed by technology stocks, which were affected by weakness in U.S. semiconductor shares at the end of last week. The Nikkei’s price-weighted structure gives significant influence to large tech companies, impacting daily index fluctuations. As the session went on, other sectors performed better, aiding the recovery of the benchmark. Bank stocks also showed relative strength as domestic yields increased. The Topix outperformed the Nikkei by the close, indicating broader support beyond the largest technology firms.
On Tuesday, Japanese equities faced renewed downward pressure, with the Nikkei falling approximately 1% to 65,646.57 during trading. Semiconductor-related stocks again ranked among the weakest sectors. Global bond yields and energy prices remained elevated, with Brent crude trading above $91 a barrel amid ongoing Middle East conflicts. The yen stayed near 160 per dollar, keeping currency movements in focus. Since Japan imports most of its crude oil, changes in global energy prices are crucial for domestic costs and inflation.
Market attention remains on interest rate developments in Tokyo
The Bank of Japan maintained its short-term policy rate close to 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 key concern in its latest policy statements. On August 28, the Fed chair highlighted that U.S. inflation remained above its 2% target. Expectations for higher borrowing costs increased after these comments, even as Japanese yields stayed near three-decade highs.
Monday’s closing figures showed that the Nikkei’s initial 1.97% decline did not persist throughout the trading day. The index largely recovered, ending just 0.14% lower, while the Topix registered a gain. On Tuesday, the market declined again amid weakness in chip shares and sustained high bond yields. These two sessions underscored significant volatility across Japanese stocks, government debt, and the yen. As September begins, key factors shaping trading include interest rates, inflation, energy prices, and currency fluctuations.