TOKYO / RankWire.AI / – Japanese equities faced significant downward pressure on Monday as the Nikkei 225 declined nearly 2% in early trading. The index dropped 1.97% to 65,096.63 and dipped to an intraday low of 64,832.10. Technology stocks led the decline as investors responded to rising bond yields and expectations of tighter interest rate policies. Meanwhile, the broader Topix also fell early, decreasing 0.84% to 4,111.71. Simultaneously, Japanese government bond yields increased, exerting additional pressure on rate-sensitive sectors of the stock market.
The initial selloff in the morning was largely reversed before the close. The Nikkei ended Monday at 66,311.93, down only 93.63 points, or 0.14%, after rebounding from its session low. The Topix closed at 4,156.29, rising 0.23% and turning around from earlier losses. Market breadth improved during the day. Of Nikkei components, 131 stocks gained, 91 declined, and three remained unchanged. The final figures showed a much smaller decline than the steep drop seen shortly after trading started.
Japanese government bonds remained a focal point for investors. The 10-year benchmark yield rose to 2.95%, its highest since 1996. The two-year yield increased to 1.73%, marking its highest since April 1995. Short-term bond yields often closely follow expectations for central bank policy. Rising yields also lead to falling bond prices. These moves came as markets increased their expectations for higher interest rates in both Japan and the U.S.
Japanese bond yields reach multi-decade highs
Technology stocks bore the brunt of early declines, especially after weakness in U.S. semiconductor shares at week’s end. The Nikkei’s weighted structure gives large tech firms significant influence on daily index shifts. As the session advanced, other sectors performed better, helping the index recover. Bank stocks also held up more strongly as domestic yields climbed. The Topix outperformed the Nikkei by the close, indicating broader support outside the leading technology firms.
On Tuesday, Japanese shares faced renewed pressure. The Nikkei fell about 1% during the session, ending at 65,646.57. Semiconductor-related stocks again showed weakness. Global bond yields and energy prices remained high. Brent crude traded above $91 a barrel amid renewed Middle East conflicts. The yen hovered near 160 per dollar, keeping currency movements in focus. Since Japan imports most of its crude oil, fluctuations in energy prices influence domestic costs and inflation.
Interest rate considerations remain central for Tokyo markets
The Bank of Japan maintained its short-term policy rate near 1% after raising it in June and leaving it unchanged in July. Its next monetary policy meeting is scheduled for September 17 and 18. Meanwhile, the Federal Reserve emphasized inflation as a key focus in its latest policy statement. On August 28, its chair noted that U.S. inflation remained above the 2% target. Expectations for higher borrowing costs grew after those comments, even as Japanese yields stayed near their three-decade high.
Monday’s data showed the Nikkei’s initial 1.97% drop did not persist. The index recovered most of that loss and finished just 0.14% lower, with the Topix closing higher. Tuesday saw another dip, driven by weakness in chip stocks and persistent high yields. These two days highlighted significant fluctuations across Japanese stocks, government debt, and the yen. Key factors influencing trading in Tokyo as September begins included interest rates, inflation, energy prices, and currency movements.