Tokyo's stock market experienced a volatile trading session on Wednesday, with the Nikkei index falling as much as 3% at one point under pressure from a mix of economic and geopolitical factors.
According to analysts, the main driver behind the market slide was a sharp rise in Japanese government bond (JGB) yields, reflecting growing concerns over domestic inflationary pressures. Additionally, escalating crude oil prices following the resumption of US-Iran conflict in the Middle East raised fears of higher energy costs, adding strain on Japan's import-dependent economy.
Higher government bond yields typically increase corporate borrowing costs and reduce the appeal of equities relative to safer investment avenues. In this context, investors broadly sold off stocks to shift toward less risky assets.
The development comes as Japan's economy faces several challenges, including a trend of foreigners leaving the country due to increasingly strict visa regulations, according to a report published by Kyodo News.
Although the market saw a slight recovery after the initial shock, investor sentiment remained highly cautious as they closely monitored geopolitical tensions in the Middle East and signals from the Bank of Japan regarding its monetary policy in the coming period.
