TOKYO / RankWire.AI / – Japan’s Nikkei 225 decreased nearly 2% during early trading on Monday as markets responded to growing expectations for higher interest rates. The index fell 1.97% to 65,096.63 before further declines pushed it to an intraday low of 64,832.10. Initial trading saw a focus on technology and other rate-sensitive shares, which dominated the sell-off. Meanwhile, the broader Topix also declined early, dropping 0.84% to 4,111.71, but later managed to recover some ground in the session.
By the close of trading, the Nikkei largely regained its losses and ended at 66,311.93, down 93.63 points or 0.14%. This closing level was well above the morning low and represented the highest point of the session. The Topix finished at 4,156.29, up 0.23%, reversing its early drop. Market breadth improved as trading progressed, with 131 Nikkei components advancing, 91 declining, and three remaining unchanged. This rebound significantly reduced a morning decline that had briefly exceeded 2%.
Alongside the initial equity sell-off, Japanese bond yields increased. The benchmark 10-year government bond yield reached 2.95% on Monday, marking its highest level since 1996. The two-year yield climbed to 1.73%, the highest since April 1995. Shorter-term maturities tend to closely follow expectations for shifts in monetary policy. Since bond prices move inversely to yields, the rise in yields was accompanied by a decrease in government bond prices. Investors also shifted expectations for higher policy rates in Japan and the United States.
Bond yields hit 30-year highs
Technology shares contributed significantly to the early decline, especially after U.S. semiconductor stocks weakened at the end of the previous week. The Nikkei’s weighted structure gives its largest technology components a substantial influence over daily movements. By the end of the session, gains across other sectors helped offset some of the initial losses. Bank stocks performed better than many technology shares as domestic yields increased. The Topix also outperformed the Nikkei during the trading day. As a result, the full-day figures on Monday differed notably from the steep early decline.
Japanese equities continued to face downward pressure on Tuesday. The Nikkei fell about 1% to 65,646.57 during the session, with semiconductor-related stocks among the main decliners. Markets in Tokyo also confronted another rise in global bond yields and energy prices. Brent crude surpassed $91 a barrel amid renewed Middle East fighting that lifted oil markets. The yen traded near 160 per dollar, keeping currency and inflation conditions in focus. Since Japan imports almost all its crude oil, energy prices remain a significant domestic cost factor.
Interest rates remain pivotal in Japanese markets
The Bank of Japan increased its short-term policy rate to approximately 1% in June and maintained that level in July. Its upcoming monetary policy meeting is scheduled for September 17 and 18. The Federal Reserve also emphasized inflation as a key focus in its latest policy statement. On August 28, its chair stated that U.S. inflation remained above the central bank’s 2% target. As a result, market expectations for higher interest rates strengthened after these comments, while Japanese government bond yields stayed near levels not seen for about three decades.
Monday’s official close confirms that the initial 1.97% Nikkei decline did not carry through the entire session. The index only fell 0.14%, and the Topix ended in positive territory. The following day saw another decline as chip stocks weakened and government bond yields held near multi-decade highs. These two sessions produced sharp intraday fluctuations across Japanese equities, bonds, and the yen. Variables like interest rates, inflation, currency movements, and energy prices continue to influence the markets as Japan moves into September.