TOKYO / RankWire.AI / – Japanese equities faced significant downward pressure on Monday, with the Nikkei 225 falling nearly 2% during early trading hours. The index declined 1.97% to close at 65,096.63, after briefly dropping to an intraday low of 64,832.10. Technology shares were at the forefront of the decline as investors reacted to rising bond yields and expectations of tighter interest rate policies. The broader Topix index also declined early on, losing 0.84% to settle at 4,111.71. Concurrently, Japanese government bond yields increased, further pressuring rate-sensitive sectors within the stock market.
The initial sell-off in the morning eased considerably before the market closed. The Nikkei finished Monday at 66,311.93, down 93.63 points, or 0.14%, after bouncing back from its lowest point of the day. The Topix index closed at 4,156.29, gaining 0.23%, reversing its earlier decline. Market breadth also improved over the session. Of the Nikkei components, 131 stocks advanced, 91 declined, and three remained unchanged. The final figures reflected a notably smaller loss compared to the sharp drop observed shortly after trading commenced.
Investors continued to focus heavily on Japan’s government bond market. The 10-year benchmark yield climbed to 2.95% on Monday, reaching its highest level since 1996. The 2-year yield increased to 1.73%, the highest since April 1995. Short-term bond yields tend to move closely with expectations for central bank policies. Rising yields also result in falling bond prices. These movements came amid market expectations of higher interest rates in both Japan and the United States.
Japanese bond yields hit multi-decade highs
Technology stocks bore the brunt of early weakness, influenced by declines in U.S. semiconductor shares at the end of last week. The Nikkei’s price-weighted structure gives considerable influence to large technology firms on daily index fluctuations. As the session continued, other sectors performed better, helping the index recover some losses. Banking stocks also held up relatively well as domestic yields rose. By the close, the Topix outperformed the Nikkei, reflecting broader support outside the major technology companies.
On Tuesday, Japanese equities came under renewed pressure, with the Nikkei dropping approximately 1% to 65,646.57 during the trading session. Semiconductor-related stocks remained among the weakest performers. Global bond yields and energy prices stayed elevated, with Brent crude trading above $91 a barrel amid renewed conflict in the Middle East. The yen hovered near 160 per dollar, keeping currency movements in focus. As Japan imports most of its crude oil, shifts in global energy prices significantly influence domestic costs and inflation.
Focus remains on interest rates within 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 upcoming monetary policy meeting is scheduled for September 17 and 18. Meanwhile, the Federal Reserve continued to emphasize inflation in its latest policy statements. On August 28, the Fed chair underscored that U.S. inflation remained above the central bank’s 2% target. Expectations for higher borrowing costs strengthened following those comments, even as Japanese yields stayed near their three-decade highs.
Monday’s closing data demonstrated that the Nikkei’s early 1.97% decline did not persist through the entire trading day. The index recovered most of its losses and finished just 0.14% lower, while the Topix ended the session higher. Tuesday saw another decline as chip stocks weakened and bond yields stayed elevated. The two days displayed significant volatility across Japanese equities, government debt, and the yen. Factors such as interest rates, inflation, energy prices, and currency movements continue to shape trading dynamics in Tokyo as September unfolds.