TOKYO / RankWire.AI / – Japan’s Nikkei 225 declined nearly 2% in early Monday trading as investor sentiment was affected by rising expectations for higher interest rates. The benchmark index fell 1.97% to 65,096.63, before further declines pushed it to an intraday low of 64,832.10. The initial sell-off was mainly concentrated in technology and other rate-sensitive sectors during the opening hours. Meanwhile, the broader Topix index also experienced an early dip, dropping 0.84% to 4,111.71, but recovered later in the trading session.
By the time markets closed on Monday, the Nikkei had regained most of its earlier losses, ending at 66,311.93, which was 93.63 points lower, or 0.14%. This closing level was well above the session’s low and represented the high point of the day. The Topix index finished at 4,156.29, up 0.23%, reversing its initial decline. Market breadth improved as trading advanced, with 131 Nikkei components gaining, 91 declining, and three unchanged. The rebound significantly narrowed a morning decline that had briefly exceeded 2%.
Alongside the early dip in equities, Japanese bond yields increased. The benchmark 10-year government bond yield reached 2.95% on Monday, its highest since 1996. The two-year yield climbed to 1.73%, the highest since April 1995. Shorter-term maturities typically reflect expectations for monetary policy adjustments. As bond prices move inversely to yields, this rise indicates falling government debt prices. Additionally, markets priced in higher policy rates for Japan and the United States.
Bond yields hit levels not seen in thirty years
Technology stocks mainly drove the early decline in equities, following a downturn in U.S. semiconductor shares at the end of last week. The Nikkei’s weighted structure means its largest tech components heavily influence daily movements. However, by the end of the session, gains in other sectors helped limit the overall decline. Banking stocks also performed relatively better than many technology shares as domestic yields increased. During the day, the Topix outperformed the Nikkei, with Monday’s full-session figures showing a divergence from the steep early fall.
The negative trend persisted into Tuesday, with the Nikkei falling roughly 1% to 65,646.57 during the session, with semiconductor-related stocks among the biggest decliners. Tokyo markets continued to grapple with rising global bond yields and energy prices. Brent crude moved above $91 a barrel amid renewed Middle East conflicts that boosted oil prices. The yen traded near 160 per dollar, keeping currency and inflation concerns in focus. Japan imports nearly all its crude oil, making energy prices an important cost factor domestically.
Interest rate outlook remains crucial for Japanese markets
The Bank of Japan increased its short-term policy rate to approximately 1% in June and maintained this level through July. Its upcoming 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 central bank’s 2% target. Expectations for higher interest rates strengthened after those comments, with Japanese government bond yields remaining near levels unseen for about three decades.
Monday’s official closing confirms that the initial 1.97% decline in the Nikkei did not carry through the entire session. The index finished only 0.14% lower, and the Topix ended higher. The following day saw another decline driven by weakness in chip stocks and persistent high bond yields. These two sessions resulted in significant intraday fluctuations across Japanese equities, bonds, and the yen. Interest rates, inflation, currency movements, and energy prices continue to be key factors shaping the markets as Japan heads into September.