TOKYO / RankWire.AI / – Japan’s Nikkei 225 declined nearly 2% at the start of Monday trading as investor sentiment shifted towards expectations of rising interest rates. The index dropped 1.97% to 65,096.63 before sliding further to a low of 64,832.10 during the day. The decline was mainly driven by selling in technology and other rate-sensitive sectors in the opening hours. Meanwhile, the broader Topix also experienced early losses, falling 0.84% to 4,111.71 before recovering later in the trading session.
By the session’s end, the Nikkei had recovered most of its earlier losses, closing at 66,311.93, which was 93.63 points or 0.14% below the previous close. This closing figure remained well above the morning low and represented the session’s high. The Topix also finished higher at 4,156.29, gaining 0.23%, reversing its initial decline. Market breadth improved as trading progressed, with 131 Nikkei components advancing, 91 declining, and three unchanged. This rebound significantly narrowed the morning’s sharp decline, which had briefly surpassed 2%.
Alongside the early weakness in equities, Japanese bond yields surged. The 10-year government bond yield reached 2.95% on Monday, its highest point since 1996. The two-year yield climbed to 1.73%, its highest since April 1995. Yields on shorter maturities closely follow expectations for monetary policy adjustments. Since bond prices move inversely to yields, this rise coincided with a drop in government debt prices. Market expectations for higher policy rates in both Japan and the United States also increased.
Bond yields hit levels unseen in three decades
Technology stocks carried much of the initial pressure on equities, especially after U.S. semiconductor stocks weakened at the end of the previous week. The Nikkei’s weighted index amplifies the influence of its largest tech components on daily movements. As the session progressed, gains in other sectors helped reduce the benchmark’s overall decline. Bank stocks outperformed many technology shares as domestic yields rose. The Topix also showed better performance than the Nikkei during the trading day. Therefore, the full-session figures on Monday differed notably from the steep early decline.
The downward momentum in Japanese stocks persisted into Tuesday, with the Nikkei dropping approximately 1% to close at 65,646.57. Semiconductor-related stocks were among the main decliners. The markets also faced renewed pressure from rising global bond yields and energy prices. Brent crude exceeded $91 a barrel as renewed Middle East conflicts pushed oil markets higher. The yen traded near 160 per dollar, keeping currency and inflation concerns in focus. Japan’s heavy reliance on imported crude oil makes energy costs a critical domestic factor.
Interest rate expectations continue to dominate Japan’s financial landscape
In June, the Bank of Japan increased its short-term policy rate to around 1% and maintained that level in July. Its upcoming monetary policy meeting is scheduled for September 17 and 18. Meanwhile, the Federal Reserve also emphasized inflation as a key aspect of its latest policy stance. On August 28, its chair stated that U.S. inflation remained above the central bank’s 2% target. Following these remarks, market expectations for higher interest rates strengthened, while Japanese government bond yields remained near levels not seen in about thirty years.
Monday’s closing confirms that the early 1.97% decline in the Nikkei did not last through the entire session. The index ultimately finished only 0.14% lower, with the Topix ending in positive territory. The next day saw further declines as chip stocks weakened and bond yields stayed near multi-decade highs. These two sessions produced considerable intraday volatility across Japanese stocks, bonds, and the yen. As September unfolds, interest rates, inflation, currency movements, and energy prices will remain vital factors shaping the markets.