Japan’s Nikkei 225 slumped nearly 3% on Friday as a renewed sell-off in global technology shares overwhelmed the Bank of Japan’s widely expected decision to leave interest rates unchanged.
The benchmark was down 2.8%, reversing Thursday’s 1.1% advance. Chip equipment makers Advantest and Tokyo Electron led the retreat alongside SoftBank Group, as investors questioned whether vast artificial intelligence investments would deliver adequate profits.
The BoJ held its benchmark rate at 1.25%, but signalled that inflation pressures could justify further tightening. That leaves Japanese equities confronting two risks at once.
Nikkei 225 today: Why Wall Street’s AI retreat hit Japan so hard
The selling started before the BoJ announced its decision. Tokyo followed losses on Wall Street, where the Nasdaq Composite fell 1.4% on Thursday and Alphabet plunged 12.6% as investors scrutinised the cost of its AI expansion.
Weak extended-hours reactions to Intel and Amazon’s results added to concerns about the cash required to build data centres and buy computing equipment.
Japanese suppliers are exposed to that spending cycle. Advantest fell 9.1%, Tokyo Electron lost 5.6% and SoftBank Group dropped 6.7% in the Reuters snapshot. Ibiden plunged 15.2%, while Lasertec declined 13.8%.
“The Japanese stock market is being affected by this fall in US technology shares,” Nomura Securities strategist Maki Sawada told Reuters.
The broader Topix fell a milder 1.3%, showing that the hardest selling was concentrated in technology heavyweights rather than spread evenly through the market.
The worry among investors is not necessarily that demand for advanced chips has disappeared, but that customers pouring money into AI infrastructure may struggle to earn sufficient returns, eventually limiting orders for Japanese equipment.
Nikkei 225 crash: Why the BoJ’s rate pause offered little relief
The Bank of Japan kept its policy rate at 1.25% in an eight-to-one vote, following September’s increase. Board member Hajime Takata wanted another rise to 1.5%, underscoring the disagreement over how quickly borrowing costs should climb.
The pause itself was expected. More significant was the bank’s acknowledgement that underlying inflation had reached roughly 2%, strengthening the argument for another move before year-end.
Tokyo prices excluding fresh food and energy rose 2.6% in October, slowing from 2.9% in September. Japanese government bonds attracted buyers as shares weakened, pushing the ten-year yield towards 2.78%.
“The BOJ probably sees a need to raise the rate towards neutral as soon as reasonably possible,” BNP Paribas economist Ryutaro Kono said, according to The Straits Times, ahead of the meeting.
Kono also cautioned that inflation risks did not yet require consecutive increases.
Could December bring another setback for the Nikkei 225?
Markets had priced in roughly an 80% probability of a December rate rise before Friday’s decision. ANZ economists expect the BoJ to increase borrowing costs by a quarter-point in December and again in March.
“We forecast the BoJ will raise interest rates 25 basis points in December and follow that with another 25bp hike in March next year,” ANZ said.
Those increases are predictions, not commitments. Governor Kazuo Ueda’s comments, incoming inflation figures and company earnings will shape expectations.
That leaves the next round of Japanese corporate results unusually important.
Strong order books at chip equipment manufacturers could counter fears of a spending slowdown, while cautious guidance would give investors another reason to reassess already stretched valuations.
Lower energy costs and steadier US technology shares could help Japanese equities recover. But another bout of disappointing AI earnings, combined with faster domestic tightening, would make a rebound harder.
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