The Nikkei 225 Index extended its slide on Wednesday, falling to 64,253 points, its lowest level since August 5, as a relentless rise in Japanese government bond yields and renewed US-Iran hostilities weighed on investor sentiment. The benchmark is now down 11.8% from its June peak of 72,842, with most components trading in the red.
Bond yields surge to multi-decade highs
Japan's 10-year government bond yield jumped to 3% for the first time since 1996, while the 30-year yield climbed to 4.17%, a stark contrast to the pandemic-era low of 0.113%. The surge reflects growing concerns over fiscal discipline under Prime Minister Sanae Takaichi, whose administration has overseen widening budget deficits and elevated government spending.
The yield spike has also pressured the yen, with the USD/JPY pair crossing the 160 threshold, continuing its ascent from the August 3 low of 155.22. A weaker yen typically benefits exporters, but the current environment of rising yields and geopolitical uncertainty has overshadowed that dynamic.
BoJ rate hike bets intensify
Traders are increasingly pricing in a Bank of Japan rate hike at the upcoming policy meeting, with odds jumping to 91% on prediction markets like Polymarket and Kalshi. Historically, Japanese equities tend to underperform when the central bank tightens policy, as higher borrowing costs squeeze corporate margins and dampen risk appetite.
Geopolitical tensions add pressure
The index also came under pressure from escalating US-Iran tensions. The US launched retaliatory strikes on Tuesday following attacks on American positions in Jordan, and subsequent actions near the Strait of Hormuz have pushed crude oil prices higher. Brent crude traded near $95 per barrel, while WTI approached $90. As a major oil importer, Japan is particularly vulnerable to energy price spikes, which could stoke inflation and further complicate the BoJ's policy path.
SoftBank and other laggards
SoftBank Group, a bellwether for the AI trade, tumbled 6.16% and is now down 46% from its year-to-date high. Memory chipmaker Kioxia also fell sharply, dropping 54% from its peak. Other notable decliners included Toyota Motor, Tokyo Electron, Recruit Holdings, and Hitachi.
The selloff in Japanese equities mirrors broader regional weakness, as seen in Korea's KOSPI dropping 2.9% and Samsung and SK Hynix falling 3% on similar concerns over oil and yields. The global bond selloff has also pressured US markets, with the Dow dropping 254 points as yields and oil climbed.
Technical outlook
From a technical perspective, the Nikkei 225 has broken below its 50-day moving average, and the Percentage Price Oscillator (PPO) has formed a bearish crossover, signaling that sellers remain in control. The next major support level is seen at 60,000, a psychological and historical level that could attract buyers if tested.
Investors will be closely watching the BoJ's decision later this month, as well as developments in the Middle East, for further direction. The combination of rising yields, geopolitical risk, and potential policy tightening suggests that volatility may persist in the near term.
This article is for informational purposes only and does not constitute financial advice.
