TOKYO / RankWire.AI / – Japan’s Nikkei 225 slid nearly 2% in early trade Monday as markets reacted to rising expectations for higher interest rates. The benchmark fell 1.97% to 65,096.63 before extending losses to an intraday low of 64,832.10. Selling centered on technology and other rate sensitive shares during the opening hours. The broader Topix also fell early, dropping 0.84% to 4,111.71 before recovering later in the session.
The Nikkei recovered most of its losses by Monday’s close and finished at 66,311.93, down 93.63 points, or 0.14%. That closing level stood well above the morning low and marked the session high. The Topix ended at 4,156.29, up 0.23%, reversing its early decline. Market breadth also improved as trading progressed, with 131 Nikkei constituents advancing, 91 declining and three finishing unchanged. The rebound sharply narrowed a morning decline that had briefly exceeded 2%.
Japanese bond yields rose alongside the early weakness in equities. The benchmark 10-year government bond yield touched 2.95% on Monday, its highest level since 1996. The two-year yield rose to 1.73%, its highest level since April 1995. Shorter maturities closely track expectations for changes in monetary policy. Bond prices move inversely to yields, so the increase accompanied lower government debt prices. Markets also increased their pricing for higher policy rates in Japan and the United States.
Bond yields reach three-decade highs
Technology shares carried much of the early equity pressure after U.S. semiconductor stocks weakened at the end of the previous week. The Nikkei’s price-weighted structure gives its largest technology components significant influence over daily moves. By the close, gains across other parts of the market helped narrow the benchmark’s decline. Bank shares performed better than many technology stocks as domestic yields climbed. The Topix also outperformed the Nikkei during the session. Monday’s full-session figures therefore differed substantially from the steep early decline.
The pressure on Japanese equities continued Tuesday. The Nikkei fell about 1% to 65,646.57 during the session, 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 Middle East fighting lifted oil markets. The yen traded near 160 per dollar, keeping currency and inflation conditions in focus. Japan imports nearly all its crude oil, making energy prices an important domestic cost factor.
Interest rates remain central to Japan markets
The Bank of Japan raised its short-term policy rate to around 1% in June and kept that level in July. Its next monetary policy meeting is scheduled for September 17 and 18. The Federal Reserve also kept inflation at the center of its latest policy message. Its chair said on August 28 that U.S. inflation remained above the central bank’s 2% target. Market pricing for higher interest rates strengthened after those comments, while Japanese government bond yields remained near levels unseen for about three decades.
Monday’s official close confirms that the early 1.97% Nikkei decline did not persist through the full session. The index finished only 0.14% lower, while the Topix ended in positive territory. Tuesday then brought another decline as chip shares weakened and government bond yields remained near multi-decade highs. The two sessions produced sharp intraday swings across Japanese stocks, bonds and the yen. Interest rates, inflation, currency movements and energy prices remained central market variables as Japanese financial markets entered September.