Nikkei 225 Falls to a Two-Month Low as AI Chip Stock Selloff Deepens Despite Broader Market Recovery

Japan's benchmark Nikkei 225 index fell to its lowest level in roughly two months on Wednesday, extending a punishing selloff in artificial intelligence and semiconductor-related shares even as the broader Japanese stock market showed signs of stabilizing.

The Nikkei 225 closed down 930.73 points, or 1.49%, at 61,434.19, according to index data. The decline followed an even steeper 3.95% plunge on Tuesday, when the index shed 2,566.27 points to close at 62,364.92, marking one of its sharpest single-day drops of the year. Wednesday's session briefly pushed the index down more than 1,700 points intraday, with the Nikkei touching a low of 60,448.90 before paring some of its losses into the close.

Selling remained concentrated in a relatively narrow group of high-priced technology stocks tied to artificial intelligence and chip manufacturing, even as the broader market showed a markedly different pattern. The Topix index, a broader gauge of the Tokyo Stock Exchange that is not price-weighted the way the Nikkei is, actually rose 10.44 points, or 0.26%, to close at 3,974.03 on Wednesday, extending a smaller gain of 0.26% from the previous session. Investors rotated into banks, domestic-demand-focused companies and other value stocks as they pulled back from the technology names that had driven much of the market's earlier gains this year.

The divergence between the two indexes highlighted how narrowly concentrated Wednesday's selling pressure was. On the Tokyo Stock Exchange's Prime Market, roughly 64% of individual stocks advanced on Wednesday even as the headline Nikkei 225 fell, according to market data, underscoring that the losses were driven by a small number of major AI-related companies rather than broad-based selling across the market.

Semiconductor and chip-equipment makers bore the brunt of the declines over the two-session stretch. Tuesday's rout saw steep losses in names including Sumco, down more than 17%, Taiyo Yuden, down more than 12%, and Resonac Holdings, down nearly 12%. SoftBank Group fell more than 4%, while chip-testing equipment maker Advantest dropped more than 10% during the same session.

The selloff in Tokyo tracked an even more severe collapse in South Korean equities, where the Kospi index plunged more than 10% on Tuesday alone, extending losses that ultimately compounded into one of the worst two-day declines in that index's history. South Korean chip giants Samsung Electronics and SK Hynix fell more than 13% and nearly 15%, respectively, on Tuesday, as investor confidence in the broader Asian semiconductor sector deteriorated sharply.

Analysts pointed to a combination of factors driving the selloff, including mounting concerns that heavy capital spending commitments tied to artificial intelligence infrastructure may not be sustainable at current levels, along with growing worries about intensifying competition from Chinese chipmakers eroding the technological advantages long held by Japanese and South Korean firms. A sharp overnight selloff in U.S. chipmakers also weighed on sentiment in Asia, driven in part by concerns that circular financing arrangements underpinning some AI infrastructure investments could unravel if major technology companies scale back their capital spending plans.

Renewed geopolitical tensions in the Middle East added further pressure to risk appetite across Asian markets this week, with fighting between the United States and Iran resuming after a brief pause. Japan's heavy reliance on Middle Eastern oil, which accounts for more than 90% of the country's crude imports, has left the country particularly exposed to swings in sentiment tied to the conflict, even as officials have said they see few near-term alternatives to that dependence.

Currency markets have added another layer of uncertainty to Japanese equities in recent sessions, with the yen trading near a 40-year low against the U.S. dollar, raising concerns among some investors about a potential unwind of yen-funded carry trades that have supported risk assets globally in recent years. The U.S. dollar-yen pair has traded weakly in the mid-163 range, with markets remaining watchful for any signs of currency intervention by Japanese monetary authorities.

Beyond the market turmoil, Japan's Ministry of Health, Labor and Welfare confirmed Wednesday that the country's national average minimum wage will rise by 55 yen, or 4.9%, to 1,176 yen per hour in fiscal 2026, after a labor ministry panel finalized this year's wage increase guidelines. Separately, Toyota Motor Corp. said it had suspended operations at several factories following a recent earthquake, adding an additional layer of disruption for one of Japan's largest industrial exporters during an already volatile trading week.

Investors are now looking ahead to a heavy slate of scheduled events in the coming days, including major corporate earnings reports from both Japanese and U.S. technology companies, as well as monetary policy decisions from central banks in Japan and the United States, all of which are expected to shape the direction of Asian equity markets heading into next week.