TOKYO / RankWire.AI / – Japan’s Nikkei 225 declined nearly 2% during early trading on Monday as traders reacted to expectations of higher interest rates. The index dropped 1.97% to 65,096.63 before falling further to an intraday low of 64,832.10. Technology and other rate-sensitive stocks led the selling at market open. The broader Topix also experienced an early decline, falling 0.84% to 4,111.71, before later recovering during the session.
By the end of the day, the Nikkei had regained most of its earlier losses, closing at 66,311.93. This was a decrease of 93.63 points, or 0.14%. The closing level was well above the morning low and marked the session high. The Topix closed at 4,156.29, up 0.23%, reversing its initial decline. Market breadth improved as trading continued, with 131 Nikkei stocks advancing, 91 declining, and three unchanged. The rebound significantly narrowed a morning decline that had briefly exceeded 2%.
Japanese bond yields increased alongside the early stock weakness. The benchmark 10-year government bond yield rose to 2.95% on Monday, its highest point since 1996. The two-year yield increased to 1.73%, reaching its highest since April 1995. Shorter-term yields closely track expectations for monetary policy adjustments. As bond prices move inversely to yields, the rise caused government debt prices to fall. Markets also priced in higher policy rates in both Japan and the U.S.
Bond yields hit levels not seen in thirty years
Technology stocks drove much of the early market pressure, following weakness in U.S. semiconductor shares at the end of last week. The Nikkei’s price-weighted structure means its largest tech components have a strong influence on daily movements. By session end, gains in other sectors helped limit the decline. Bank stocks outperformed many tech shares as domestic yields climbed. The Topix also outpaced the Nikkei during trading. As a result, Monday’s full-day figures showed a significant difference from the steep early drop.
The pressure on Japanese equities persisted into Tuesday. The Nikkei fell about 1% to 65,646.57 during trading, with semiconductor-related shares among the main decliners. Tokyo markets also faced another rise in global bond yields and energy prices. Brent crude moved above $91 a barrel as renewed fighting in the Middle East boosted oil prices. The yen traded close to 160 per dollar, keeping currency and inflation considerations in focus. Japan imports nearly all its crude oil, so energy costs remain a key domestic concern.
Interest rate expectations remain key in Japan’s markets
The Bank of Japan raised its short-term policy rate to about 1% in June and held it steady in July. Its upcoming monetary policy meeting is scheduled for September 17 and 18. The Federal Reserve also emphasized inflation in its latest policy statement. On August 28, its chair noted that U.S. inflation stayed above the 2% target. After those comments, market expectations for higher interest rates increased, while Japanese government bond yields stayed near levels unseen in almost thirty years.
Monday’s official close shows the 1.97% decline in the Nikkei did not last throughout the session. The index finished only 0.14% lower, with the Topix ending in positive territory. On Tuesday, the market declined again as chip stocks weakened and bond yields remained high. The two days saw sharp intraday swings across stocks, bonds, and the yen. Interest rates, inflation, currency movements, and energy prices continue to be crucial factors as Japan’s markets move into September.