- Japan’s 10-year bond reaches 3%.
- Totan Research says there is a 93% chance of a Bank of Japan rate hike.
- Cable manufacturer Fujikura dropped 3.5%.
Government bond yields rose across Asian markets on Tuesday, with Japan’s benchmark 10-year yield hitting the 3% mark for the first time in 30 years amid inflation worries and mounting fiscal strains.
This surge in borrowing costs continues to weigh heavily on Japanese equities, particularly technology and artificial intelligence-related stocks. It follows a volatile Monday session, in which the Nikkei share average closed virtually flat amid a mix of tech-sector anxiety and macroeconomic headwinds.
These equity gains remain capped by geopolitical risks in the Middle East and rising domestic inflation fears, especially as market consensus builds for an imminent Bank of Japan interest rate hike this September.
Analysts predict a high probability of a Bank of Japan rate hike
Bond yields moved higher in tandem with those of other Asian and global economies on Tuesday morning. For instance, South Korea’s 10-year government yield rose 0.06 percentage points, exceeding 4.37%. Meanwhile, Australia’s benchmark yield scaled a five-week high above 5.1%, alongside slight upward ticks in New Zealand and Singaporean 10-year debt. The 10-year U.S. Treasury yield had also hit a peak of 4.76% overnight.
Some of these upticks are closely tied to escalating conflicts in the Middle East, which have lifted Brent crude futures by 0.7% to nearly $91 per barrel, intensifying global commodity supply fears. Nonetheless, the current momentum is boosting expectations for more central bank rate hikes.
According to CME FedWatch metrics, markets currently price in a better-than-60% chance that the U.S. Federal Reserve will raise interest rates at its September meeting.
Beyond global macro factors, Japanese market sentiment is being adversely affected by structural fiscal factors and weakening supply-and-demand dynamics in the domestic bond market. The chances of an increase in the bank rate in the near future stand at 93%, based on Totan Research and Totan ICAP data.
Nonetheless, Japan will be selling its 10-year government bonds on Tuesday afternoon. Michael Wan, a senior currency analyst at MUFG Bank, Singapore, noted that it would reveal investors’ stance on higher yields in developed market bonds around the world
Some of Japan’s AI-related shares declined
Most AI-related stocks, which have a substantial influence on Japan’s major Nikkei index, fell on Monday. Cable maker Fujikura fell 3.5%, while conglomerate SoftBank Group fell 3.3%. However, semiconductor equipment makers rose, with Tokyo Electron rising 2.1%.
The Topix index of Japan also ended marginally higher, rising 0.1%, amid new costs weighing on corporate profit margins in the technology industry. Chipmaker Nvidia just told its best customers they should be ready for an increase of more than 15% in AI servers due to rising memory costs.
The weak performance of AI-oriented Japanese stocks comes as investors wonder whether the extraordinary rally in technology stocks can continue at the same pace. Semiconductor and AI companies have enjoyed huge demand for data centers, advanced chips, and computing solutions, but rising financing costs are putting more pressure on a more challenging environment.
Investors will now ask whether corporate earnings can still justify elevated valuations as bond yields rise. If AI spending cuts or pressure on profit margins play out, such companies that saw big gains during the AI boom could see their shares fall, particularly those with the greatest gains in earnings.
At the same time, Japan’s semiconductor sector remains strategically important, supported by government efforts to boost domestic chip production and attract investment in advanced manufacturing. That might provide some longer-term support even if higher interest rates create short-term volatility.
Wataru Akiyama, an equities strategist at Nomura Securities, speaking on the future margins for global tech firms, noted: “We view the concerns over the profitability of semiconductor-related companies — led by Nvidia — as little more than a pretext or trigger for selling,” following “a significant build-up of open positions in margin trading recently. I think it is fair to say that the outlook for earnings growth in AI and semiconductor-related stocks has not changed.”
On the other hand, with fixed-income returns rising amid inflationary concerns, Wataru pointed out that Japanese stock market indices are not well-equipped to sustain a prolonged rise at this point.
On the brighter side, companies in Japan increased their capital expenditures in the second quarter, indicating confidence in doing business.
Certain economists suggested that an increase in capital spending could boost Japan’s economic growth prospects, thereby giving the Bank of Japan room to raise interest rates in the near future.
According to figures issued by the Ministry of Finance, Japanese capital expenditures rose by 1.6% in the second quarter compared with the same period last year, a significant pickup from the 0.05% growth recorded in the previous three-month period.
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FAQs
Why did Japan’s 10-year government bond yield reach 3%?
Japan’s 10-year government bond yield rose to 3% amid persistent inflation concerns, fiscal pressures and growing expectations that the Bank of Japan could raise interest rates in September. Higher yields have also been supported by a broader rise in global bond yields.
How are rising Japanese bond yields affecting AI and technology stocks?
Higher bond yields can make fixed-income investments more attractive while increasing financing costs and putting pressure on the valuations of growth stocks. Japanese AI and semiconductor shares have therefore come under pressure as investors reassess whether elevated valuations can be supported by future earnings.
Will the Bank of Japan raise interest rates in September?
Market expectations currently point to a high probability of another Bank of Japan rate hike, with Totan Research and Totan ICAP data putting the chances at 93%. Persistent inflation, stronger corporate spending and rising bond yields could give the central bank further reason to continue normalizing monetary policy.
Nellius Irene
Nellius is a Business Management and IT graduate with five years of experience in the cryptocurrency industry. She is also a graduate of Bitcoin Dada. Nellius has contributed to leading media publications, including BanklessTimes, Cryptobasic, and Riseup Media.
