TOKYO / RankWire.AI / – On Monday, Japanese equities faced significant downward pressure as the Nikkei 225 declined nearly 2% during early trading hours. The index dropped 1.97% to close at 65,096.63 and subsequently touched an intraday low of 64,832.10. The decline was primarily driven by technology shares reacting to rising bond yields and expectations of tighter interest rate policies. Meanwhile, the broader Topix index also experienced early weakness, falling 0.84% to 4,111.71. Simultaneously, yields on Japanese government bonds increased, adding pressure to sectors sensitive to interest rate changes in the stock market.
The initial selloff in the morning eased considerably before the market closed. The Nikkei ended the day at 66,311.93, reflecting a minor decrease of 93.63 points, or 0.14%, after recovering from its lowest point of the session. The Topix index closed at 4,156.29, with a gain of 0.23%, reversing its earlier decline. Market breadth improved throughout the trading day, with 131 stocks advancing, 91 declining and three remaining unchanged among Nikkei components. Overall, the final figures showed a much smaller loss compared to the sharp drop seen shortly after trading started.
Investors remained focused on Japan’s government bond market, where the 10-year benchmark yield climbed to 2.95%, marking its highest level since 1996. The 2-year yield also rose to 1.73%, reaching its highest point since April 1995. These short-term yields tend to closely follow expectations for central bank policy. Rising bond yields also translate into falling bond prices. These moves reflect growing market expectations of higher interest rates both in Japan and the United States.
Japanese bond yields hit multi-decade peaks
Technology shares bore the brunt of early selling, influenced by weakness in U.S. semiconductor stocks at the end of last week. Due to the Nikkei’s price-weighted structure, several large technology firms exert a strong influence on daily index fluctuations. As the session advanced, other sectors showed signs of stabilization, contributing to the index’s partial recovery. Banking stocks also demonstrated resilience, supported by rising domestic yields. By the close, the Topix outperformed the Nikkei, reflecting broader support outside the leading technology names.
On Tuesday, Japanese equities faced renewed downward pressure with the Nikkei dropping about 1% during the trading session to 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 renewed Middle East conflicts. The yen remained near 160 per dollar, maintaining currency movement as a key market focus. Since Japan imports most of its crude oil, fluctuations in global energy prices are significant for domestic costs and inflation.
Market focus remains on interest rates in Tokyo
The Bank of Japan maintained its short-term policy rate close to 1% after raising it in June and holding steady in July. The upcoming monetary policy meeting is scheduled for September 17 and 18. Meanwhile, the Federal Reserve reiterated its focus on inflation in its latest policy stance. On August 28, its chair emphasized that U.S. inflation was still above the 2% target, which strengthened expectations of higher borrowing costs. Despite this, Japanese bond yields remained near their highest levels in three decades.
Monday’s closing data revealed that the Nikkei’s initial 1.97% decline did not persist throughout the trading day. The index recovered most of its losses, ending just 0.14% lower, with the Topix closing higher. On Tuesday, a further decline took place as chip stocks weakened and bond yields stayed elevated. These two sessions underscored significant volatility in Japanese stocks, government debt, and currency markets. As September progresses, interest rates, inflation, energy prices, and currency movements continue to be vital factors influencing Tokyo’s trading landscape.