TOKYO / RankWire.AI / – On Monday, Japanese equities experienced significant downward pressure as the Nikkei 225 decreased nearly 2% during early trading. The index dropped 1.97% to close at 65,096.63, with an intraday low of 64,832.10. The decline was primarily driven by technology stocks reacting to climbing bond yields and expectations of tighter interest rate policies. Meanwhile, the broader Topix index also declined early, falling 0.84% to 4,111.71. Concurrently, Japanese government bond yields increased, exerting additional pressure on rate-sensitive segments of the stock market.
The sharp selloff in the morning eased considerably before markets closed. The Nikkei finished the day at 66,311.93, down just 93.63 points or 0.14%, recovering from its session low. The Topix ended at 4,156.29, gaining 0.23%, reversing its earlier decline. Market breadth improved throughout the trading session. Of the Nikkei constituents, 131 stocks advanced, 91 declined, and three remained unchanged. These final figures represented a considerably smaller loss than the steep drop seen shortly after trading began.
Investors continued to focus heavily on Japan’s government bond market. The benchmark 10-year yield rose to 2.95% on Monday, reaching the highest point since 1996. The two-year yield increased to 1.73%, its highest since April 1995. Yields on short-term bonds tend to closely follow expectations for central bank policy. Rising yields also lead to falling bond prices. These movements occurred as markets adjusted their outlooks for higher interest rates in both Japan and the United States.
Japanese bond yields surge to multi-decade highs
Early trading saw technology stocks absorb much of the selling pressure, partly due to weakness in U.S. semiconductor shares at the end of last week. The Nikkei’s price-weighted structure means several large technology firms exert significant influence on daily index fluctuations. As the session advanced, other sectors performed better, helping the index recover some ground. Bank stocks also showed resilience, supported by rising domestic yields. By the close, the Topix outperformed the Nikkei, indicating broader support outside the major technology names.
On Tuesday, Japanese equities came under renewed pressure, with the Nikkei falling approximately 1% to 65,646.57 during the trading session. Semiconductor-related stocks again ranked among the weakest performers. Global bond yields and energy prices remained elevated as well. Brent crude traded above $91 a barrel amid renewed conflict in the Middle East. The yen hovered near 160 per dollar, keeping currency movements in focus. Since Japan imports most of its crude oil, fluctuations in global energy prices are crucial for domestic costs and inflation.
Market attention remains fixed on interest rate developments in Tokyo
The Bank of Japan maintained its short-term policy rate near 1% after raising it in June and holding steady in July. The next scheduled monetary policy meeting will take place on September 17 and 18. The Federal Reserve also emphasized the importance of inflation in its latest policy statement. On August 28, the Fed chair highlighted that U.S. inflation remained above its 2% target. Following those remarks, market expectations for higher borrowing costs strengthened, while Japanese yields stayed near three-decade highs.
Monday’s closing data showed that the Nikkei’s initial 1.97% decline was not sustained through the entire trading day. The index recovered most of that loss and ended only 0.14% lower, with the Topix closing higher. On Tuesday, the market saw another decline as chip stocks weakened and bond yields stayed elevated. These two sessions revealed significant volatility across Japanese stocks, government debt, and the yen. Factors such as interest rates, inflation, energy prices, and currency fluctuations continue to influence trading in Tokyo as September unfolds.