TOKYO / RankWire.AI / – Japanese markets experienced significant declines on Monday morning as the Nikkei 225 dropped nearly 2% during early trading hours. The index declined 1.97% to close at 65,096.63, and later touched an intraday low of 64,832.10. The decline was largely driven by technology shares reacting to increased bond yields and expectations of tighter interest rate policies. Meanwhile, the broader Topix index also weakened initially, falling 0.84% to 4,111.71. At the same time, Japanese government bond yields increased, adding downward pressure on interest rate-sensitive sectors of the equity market.
The morning selloff eased notably before the market closed. The Nikkei finished the day at 66,311.93, down 93.63 points, or 0.14%, after rebounding from its lowest level during the session. The Topix closed at 4,156.29, gaining 0.23% and reversing earlier losses. Market breadth improved as well; among Nikkei components, 131 stocks rose, 91 declined, and three remained unchanged. Overall, the final figures showed a much smaller loss than the steep drop seen shortly after trading commenced.
Investors continued to focus heavily on Japan’s government bond market. The benchmark 10-year yield increased to 2.95% on Monday, 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 closely track expectations for central bank policy changes, and rising yields also mean falling bond prices. These movements coincided with markets increasing their expectations for higher interest rates in both Japan and the United States.
Japanese bond yields hit multi-decade peaks
Technology stocks absorbed much of the early selling pressure, especially after weakness in U.S. semiconductor shares at the end of last week. The Nikkei’s price-weighted structure means several large technology firms significantly influence daily index fluctuations. As the session progressed, other sectors outperformed, helping the index recover. Bank shares also performed relatively well, supported by rising domestic yields. By the end of trading, the Topix had outperformed the Nikkei, reflecting broader support outside the major technology companies.
On Tuesday, Japanese shares came under renewed pressure, with the Nikkei dropping about 1% to 65,646.57 during trading hours. Semiconductor-related stocks once again ranked among the weakest sectors. Global bond yields and energy prices stayed elevated; 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 important for domestic costs and inflation.
Interest rate outlook remains central for Tokyo traders
The Bank of Japan maintained its short-term policy rate near 1% after raising it in June and leaving it unchanged in July. The next monetary policy meeting is scheduled for September 17 and 18. Meanwhile, the Federal Reserve reiterated its focus on controlling inflation. On August 28, its chair emphasized that U.S. inflation remains above the Fed’s 2% target. As a result, expectations for higher borrowing costs strengthened, even as Japanese yields stayed near their highest levels in thirty years.
Monday’s closing figures indicated that the Nikkei’s initial 1.97% decline was not sustained throughout the trading day. The index recovered most of that loss to finish only 0.14% lower, and the Topix closed higher. Tuesday saw further declines, driven by weakness in chip stocks and persistent elevated bond yields. The last two sessions underscored the volatility in Japanese equities, government debt, and currency markets. As September begins, interest rates, inflation, energy prices, and currency movements continue to be the key drivers shaping trading sentiment in Tokyo.