TOKYO / RankWire.AI / – Japan’s Nikkei 225 declined nearly 2% during Monday’s early trading session amid mounting expectations for increased interest rates. The index fell 1.97% to 65,096.63 before dropping further to an intraday low of 64,832.10. The initial decline was driven by sell-offs in technology and other rate-sensitive sectors. The broader Topix also experienced an early dip, decreasing 0.84% to 4,111.71, but later rebounded during the session.
By the close of trading, the Nikkei had recovered most of its losses, ending at 66,311.93, down 93.63 points or 0.14%. This closing figure was significantly above its morning low and represented the highest point of the day. The Topix finished at 4,156.29, up 0.23%, reversing its initial decline. Market breadth improved as trading advanced, with 131 Nikkei stocks advancing, 91 declining, and three remaining unchanged. This rebound significantly narrowed the earlier decline that briefly exceeded 2%.
Simultaneously, Japanese bond yields increased alongside the early drop in equities. The benchmark 10-year government bond yield hit 2.95% on Monday, marking its highest level since 1996. The two-year yield climbed to 1.73%, reaching its highest point since April 1995. Short-term maturities tend to reflect expectations for monetary policy changes. As bond prices move inversely to yields, the rise in yields corresponded with lower prices for government debt. Additionally, markets increased their expectations for higher policy rates in both Japan and the United States.
Bond yields reach levels unseen in thirty years
Technology stocks exerted substantial influence over the early decline in equities, partly due to U.S. semiconductor shares weakening at the end of the previous week. The Nikkei’s price-weighted composition gives its largest technology components considerable sway over daily fluctuations. However, by the end of the session, gains in other sectors helped offset some of the earlier losses. Financial shares, particularly banks, performed relatively better than many technology stocks as domestic yields climbed. The Topix also outperformed the Nikkei during trading hours. As a result, the full-session figures on Monday showed a significant recovery from the steep early decline.
The downward trend persisted into Tuesday. The Nikkei dropped about 1% during the trading day to reach 65,646.57, with semiconductor-related stocks among the main decliners. Japanese markets continued to face rising global bond yields and energy prices. Brent crude surpassed $91 per barrel as renewed Middle East conflicts pushed oil markets higher. The yen traded near 160 per dollar, keeping currency and inflation outlooks in focus. Since Japan imports nearly all of its crude oil, fluctuations in energy prices are a critical factor for domestic costs.
Interest rate policies remain pivotal in Japanese markets
The Bank of Japan increased its short-term policy rate to approximately 1% in June, maintaining that level into July. Its upcoming monetary policy meetings are scheduled for September 17 and 18. Meanwhile, the Federal Reserve emphasized inflation as a key consideration in its latest policy stance. On August 28, its chair indicated that U.S. inflation still remains above the 2% target. Market expectations for higher interest rates strengthened following these comments, while Japanese government bond yields stayed near levels not seen in nearly thirty years.
Monday’s official close confirmed that the initial 1.97% decline in the Nikkei did not carry through the entire session. The index ended only 0.14% lower, while the Topix closed higher. The following day saw another decline as chip stocks weakened and bond yields remained elevated at multi-decade highs. The two sessions produced notable intraday swings across Japanese equities, bonds, and the yen. As September begins, interest rates, inflation, currency fluctuations, and energy prices continue to be key factors influencing Japanese financial markets.