TOKYO / RankWire.AI / – The Nikkei 225 in Japan experienced a nearly 2% decrease in early trading on Monday amid rising expectations for higher interest rates. The index initially dropped 1.97% to 65,096.63 before extending its decline to an intraday low of 64,832.10. The decline was driven mainly by selling in technology and other rate-sensitive stocks during the opening hours. Meanwhile, the broader Topix index also declined early, falling 0.84% to 4,111.71 before rallying later in the trading session.
By the end of Monday, the Nikkei had regained most of its losses, closing at 66,311.93, which was 93.63 points lower, or 0.14%. This closing level was significantly above the morning’s low and represented the session’s peak. The Topix closed at 4,156.29, up 0.23%, reversing its initial decline. As trading continued, market breadth improved, with 131 Nikkei components advancing, 91 declining, and three unchanged. The session’s recovery significantly narrowed the morning decline, which at one point had exceeded 2%.
Yields on Japanese government bonds climbed alongside early equity weakness. The 10-year benchmark yield reached 2.95% on Monday, its highest point since 1996, while the two-year yield increased to 1.73%, a level last seen in April 1995. Short-term maturities tend to follow expectations regarding monetary policy adjustments. As bond prices move inversely to yields, this rise led to lower prices for government debt. Additionally, markets shifted expectations toward higher policy rates in both Japan and the United States.
Bond yields hit levels not seen in thirty years
Technology stocks largely contributed to the early decline in equities, influenced by weaker U.S. semiconductor shares at the end of the previous week. The Nikkei’s price-weighted index structure gives significant influence to its largest technology components over daily movements. Nevertheless, gains in other market segments later helped lessen the overall decline. Banking shares performed relatively better than many technology stocks as domestic yields increased. During the session, the Topix outperformed the Nikkei, resulting in Tuesday’s full-session figures diverging notably from the steep early decline.
On Tuesday, the Japanese stock market continued to face downward pressure. The Nikkei dropped about 1% to 65,646.57, with semiconductor-related stocks among the main decliners. The markets also reacted to rising global bond yields and energy prices, with Brent crude climbing above $91 a barrel as renewed conflicts in the Middle East supported oil prices. The yen hovered near 160 per dollar, keeping currency fluctuations and inflation pressures in focus. Japan’s heavy reliance on crude oil imports makes energy costs a significant factor domestically.
Interest rate policy remains key in Japanese markets
The Bank of Japan increased its short-term policy rate to around 1% in June and maintained that level in July. Its next monetary policy meeting is set for September 17 and 18. Meanwhile, the Federal Reserve also emphasized inflation in its latest policy stance. On August 28, its chair stated that U.S. inflation remains above the central bank’s 2% target. Expectations for higher interest rates intensified following these comments, while Japanese government bond yields stayed near levels not seen in approximately thirty years.
The official close on Monday confirmed that the initial 1.97% decline in the Nikkei did not persist through the entire session. The index ended only 0.14% lower, and the Topix closed in positive territory. The following day, however, saw another dip as chip stocks weakened and bond yields stayed elevated near multi-decade highs. The two days generated significant intraday swings across Japanese equities, bonds, and currency markets. As September begins, interest rates, inflation, exchange rates, and energy prices continue to dominate market considerations in Japan.”}]}»}};