TOKYO / RankWire.AI / – The Nikkei 225 experienced significant declines on Monday, reflecting investor concern as Japanese government bond yields surged to levels not seen in over thirty years. The stock index fell nearly 2% during early trading, dropping 1.97% to 65,096.63 before dipping to an intraday low of 64,832.10. Technology shares bore the brunt of the decline, responding to rising bond yields and expectations of tighter interest rate policies. Meanwhile, the broader Topix also declined at the start of the session, decreasing 0.84% to 4,111.71. The rise in Japanese government bond yields exerted additional pressure on rate-sensitive sectors of the stock market.
However, the initial selloff was tempered before the market closed. The Nikkei finished Monday at 66,311.93, down only 93.63 points, or 0.14%, after rebounding from its session low. The Topix ended at 4,156.29, gaining 0.23% and reversing its earlier losses. Market breadth improved as well, with 131 stocks advancing, 91 declining, and three remaining unchanged among Nikkei components. Overall, the closing figures reflected a much smaller decline compared to the sharp drop seen shortly after trading commenced.
Investors remained highly focused on Japan’s government bond market. The 10-year benchmark yield climbed to 2.95% on Monday, marking its highest level since 1996. The two-year yield increased to 1.73%, reaching its peak since April 1995. Short-term bond yields tend to closely track expectations for central bank policy decisions. The rise in yields also translates to falling bond prices, as markets adjust to the prospect of higher interest rates in both Japan and the United States, which have driven expectations upward.
Japanese bond yields reach multi-decade peaks
Technology stocks took a hit early on, influenced by weakness in U.S. semiconductor shares at the end of last week. The Nikkei’s weighted structure amplifies the influence of major technology companies on daily index movements. As the session progressed, other sectors fared better, helping the index recover some losses. Bank shares remained relatively resilient amid rising domestic yields. By the close, the Topix outperformed the Nikkei, reflecting broader support outside the largest technology firms.
On Tuesday, Japanese equities faced renewed downward pressure, with the Nikkei falling approximately 1% to 65,646.57 during the trading session. Semiconductor-related stocks again ranked among the weakest sectors. Elevated global bond yields and energy prices persisted, with Brent crude trading above $91 a barrel amid renewed fighting in the Middle East. The yen remained near 160 per dollar, keeping currency movements in focus. Japan’s reliance on imported crude oil makes changes in global energy prices significant for domestic costs and inflation.
Markets in Tokyo remain attentive to interest rate developments
The Bank of Japan maintained its short-term policy rate near 1% following a June increase and an unchanged stance in July. Its upcoming monetary policy meeting is scheduled for September 17 and 18. The Federal Reserve also emphasized inflation concerns in its latest policy statement, with Chair Jerome Powell on August 28 noting that U.S. inflation continues to stay above the 2% target. As a result, expectations for higher borrowing costs strengthened, even as Japanese yields remained close to their highest levels in thirty years.
Monday’s trading data showed that the Nikkei’s initial 1.97% decline did not persist throughout the day. The index recovered most of its early losses, closing only 0.14% lower, while the Topix closed with gains. The following day, however, brought another decline driven by weakness in chip stocks and sustained high bond yields. These two sessions highlighted the volatility across Japanese equities, government debt, and the yen. Factors such as interest rates, inflation, energy prices, and currency movements continue to shape trading in Tokyo as September unfolds.