Tokyo Markets Plunge as AI Tech Rally Faces Drastic Correction
TOKYO (Kyodo) The Japanese stock market suffered a massive sell-off during Monday's trading session, with the benchmark Nikkei 225 Index plunging 3.85% to close at 64,024.60. Marking its sharpest one-day decline since March, the index shed 2,563.52 points from Friday’s close, while the broader Topix index also tumbled 2.45% to finish at 3,852.38. The aggressive downturn effectively halted one of the market's most successful recent rallies, pushing the Nikkei down from its year-to-date high near ¥68,670 as panicking investors rushed to lock in profits.
The primary catalyst for the Tokyo rout was a heavy technology and artificial intelligence liquidation, mirroring a steep sell-off on Wall Street late last week. U.S. markets slumped on Friday following weaker-than-expected forward guidance from tech giant Broadcom, alongside robust U.S. labor data that heightened expectations the Federal Reserve will keep interest rates elevated. In Tokyo, semiconductor and AI heavyweights took the brunt of the damage; Kioxia Holdings dropped nearly 10%, SoftBank Group tumbled 8.63%, and chip-manufacturer Sumco fell 12.8%, serving as a sharp wakeup call to overextended tech valuations.
Adding to the domestic pressure, investors reacted strongly to revised macroeconomic data out of Japan. First-quarter GDP figures revealed that the economy expanded by 0.5% quarter-on-quarter and 1.8% on an annualized basis. While this confirmed solid economic health driven by resilient private consumption and external demand, it simultaneously stoked fears among traders that the Bank of Japan (BoJ) will feel emboldened to accelerate interest rate hikes, introducing tighter liquidity conditions into the domestic market.
External geopolitical factors further dampened risk appetite as escalating conflicts in the Middle East rattled global sentiment. Over the weekend, renewed exchanges of military strikes between Israel, Iran, and Hezbollah cast a long shadow over the future of a U.S.-Iran ceasefire agreement. The resulting friction sent energy markets into a tailspin, pushing Brent crude futures up over 3.3% to $96.26 a barrel and West Texas Intermediate (WTI) to $93.70. High oil prices have immediately amplified corporate cost concerns for resource-scarce Japan, creating strong risk-off undercurrents across the board.
Despite the historic intraday point drop, market strategists maintain that the long-term structural bull case for Japanese equities remains intact. Analysts note that corporate earnings are still keeping pace with recent valuation expansions and that structural demand for AI infrastructure and semiconductor hardware is unlikely to fade. Technical indicators show the Nikkei holding above its 50-day Exponential Moving Average, suggesting to institutional observers that the pullback is an expected, healthy consolidation to flush out overheating rather than the start of a prolonged bear market.
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