TOKYO / RankWire.AI / – On Monday, Japanese equities faced significant downward pressure with the Nikkei 225 falling nearly 2% in the early trading hours. The index dropped 1.97% to close at 65,096.63, eventually hitting an intraday low of 64,832.10. The decline was mainly driven by technology stocks, as investors responded to rising bond yields and expectations of tighter interest rate policies. The broader Topix index also declined initially, losing 0.84% to 4,111.71. Meanwhile, Japanese government bond yields increased, exerting additional pressure on rate-sensitive sectors of the stock market.
The initial selloff in the morning eased considerably before the market closed. The Nikkei ended the day at 66,311.93, down only 93.63 points, or 0.14%, after bouncing back from its session low. The Topix index recovered to 4,156.29, gaining 0.23% and reversing earlier losses. Market breadth improved during the trading session; among Nikkei stocks, 131 advanced, 91 declined, and three remained unchanged. The final figures reflected a much smaller decline compared to the sharp drop seen shortly after the market opened.
Investors continued to monitor Japan’s government bond market closely. On Monday, the benchmark 10-year yield increased to 2.95%, reaching its highest point since 1996. The two-year yield climbed to 1.73%, its highest level since April 1995. Short-term bond yields tend to move in tandem with market expectations for central bank policies. The rise in yields also indicates falling bond prices. These movements occurred as markets increased their projections for higher interest rates in both Japan and the United States.
Japanese bond yields soar to multi-decade highs
Technology stocks absorbed much of the early selling pressure, partly influenced by weakness in U.S. semiconductor shares at the end of last week. The Nikkei’s weighted structure means that several large tech firms significantly influence daily index movements. As the session progressed, other sectors performed relatively better, aiding in the market’s recovery. Banking stocks also held up more robustly as domestic yields increased. By the close, the Topix outperformed the Nikkei, reflecting broader support outside the largest technology companies.
On Tuesday, Japanese shares faced renewed downward pressure, with the Nikkei falling approximately 1% to 65,646.57 during the trading session. Semiconductor-related stocks once again ranked among the weakest performers. Elevated global bond yields and energy prices persisted, with Brent crude trading above $91 a barrel amid renewed Middle East conflict. The yen remained near 160 per dollar, keeping currency movements in focus. Since Japan imports most of its crude oil, fluctuations in global energy costs are important for domestic inflation and costs inflation.
Tokyo markets remain attentive to interest rate developments
The Bank of Japan maintained its short-term policy rate near 1% after raising it in June and holding steady in July. Its upcoming monetary policy meeting is scheduled for September 17 and 18. Meanwhile, the Federal Reserve also emphasized inflation control in its recent policy statements. On August 28, the chair highlighted that U.S. inflation remained above the Fed’s 2% target. Expectations for higher borrowing costs strengthened following those comments, even as Japanese yields continued to hover near three-decade highs.
Monday’s trading data showed that the Nikkei’s early 1.97% decline was not sustained through the entire session. The index recovered most of its losses and finished only 0.14% lower, with the Topix closing in positive territory. However, Tuesday saw another dip as chip stocks weakened and bond yields stayed elevated. These two sessions underscored the volatility across Japanese equities, government debt, and the yen. Factors such as interest rates, inflation, energy prices, and currency fluctuations remain central to trading dynamics in Tokyo as September unfolds.