Nikkei 225 Plunges Into Correction Territory as Global AI and Semiconductor Selloff Rocks Tokyo Stocks

TOKYO — Japan's Nikkei 225 stock average tumbled 4.03% on Friday, closing at 64,141.12 and pushing the benchmark index more than 11% below its late-June record high as a sweeping global selloff in artificial intelligence and semiconductor stocks spread from Wall Street into Tokyo trading.

The index shed 2,694.42 points to close the session, after sinking as much as 6.18% intraday to a low of 62,704.60, its worst level in roughly a month. The decline marked the fifth-largest single-day point drop in the Nikkei's history and capped the index's steepest weekly loss since April 2025, with the benchmark falling 6.44% over the course of the week. The closing level put the Nikkei officially into correction territory, commonly defined as a decline of at least 10% from a recent peak.

A selloff rooted in Wall Street's overnight session

Friday's rout traced directly back to a sharp decline in U.S. technology shares the previous session, where the Nasdaq Composite fell 1.47% and the Philadelphia Semiconductor Index tumbled 4.3% amid renewed investor concern over the sustainability of heavy artificial intelligence infrastructure spending. U.S.-listed shares of South Korean chipmaker SK Hynix plunged more than 13% in that session, while major chip names including Arm, Micron, AMD and Broadcom each fell more than 5%.

That weakness carried directly into Tokyo trading, where semiconductor and AI-linked names bore the brunt of the selling. Memory chipmaker Kioxia Holdings tumbled between 15% and 16%, extending a punishing reversal that has now erased roughly 44% of the company's value in a single month after the stock had surged more than 600% since January. SoftBank Group, one of the most heavily weighted AI-linked names on the exchange, fell between 8% and 9%, while chip equipment makers Tokyo Electron and Advantest both dropped more than 7%.

The sharp swings were amplified by the Nikkei's price-weighted structure, in which large moves in high-priced individual stocks can swing the overall index disproportionately relative to those companies' actual market value. That dynamic was underscored by the contrast with the broader, market-capitalization-weighted Topix index, which fell a comparatively smaller 2.72% to 3,919.21 on the same day, suggesting the Nikkei's steep decline reflected concentrated losses in a handful of expensive technology and AI-related shares rather than a uniform market-wide retreat.

TSMC earnings fail to calm investor nerves

Adding to the uncertainty, Taiwan Semiconductor Manufacturing Co. posted record quarterly profit during the same period but saw its shares fall roughly 3.6% regardless, as investors treated the strong results as an opportunity to sell rather than a reason for confidence. TSMC's decision to raise its 2026 capital expenditure guidance to a range of $60 billion to $64 billion, intended to signal continued strength in AI-related demand, instead reinforced concerns among some investors that spending across the sector may be approaching a peak without a corresponding near-term payoff in profitability.

Middle East tensions compound market anxiety

Beyond the technology-sector jitters, Friday's decline also coincided with an escalation in the conflict between the United States and Iran, which prompted investors more broadly to shed riskier assets across Asian markets. The combination of chip-sector weakness and geopolitical uncertainty contributed to a broader regional selloff that extended beyond Japan, with other major Asian indexes, including Taiwan's Taiex, also posting sharp losses in the same trading session.

A rally now facing its sharpest test of the year

The pullback represents a significant reversal for a market that had been among the world's strongest performers for much of the past year. The Nikkei reached its record closing high of 72,366.34 on June 25, driven largely by sustained global investment in artificial intelligence and semiconductor-related companies. Since that peak, the index has shed more than 11% of its value, with market participants increasingly framing the recent volatility as a long-overdue correction of valuations that many analysts had described as overheated heading into the summer.

Despite the sharp and rapid nature of the decline, the prevailing view among market participants characterized Friday's move as a technical correction rather than a signal of broader economic distress in Japan, with the selloff concentrated heavily in AI and semiconductor-linked shares rather than reflecting a deterioration in underlying corporate fundamentals or the broader domestic economy.

What comes next

Market attention is now shifting toward a wave of upcoming earnings reports from major U.S. technology companies, seen as a key test of whether the current selloff stabilizes or deepens further. Investors are expected to closely scrutinize capital spending guidance from those companies in the coming weeks for signs of whether the artificial intelligence investment cycle that fueled much of this year's rally still has room to run, or whether the recent volatility marks the beginning of a more prolonged reassessment of AI-related valuations across global markets.

For now, Tokyo investors are contending with a market that has shifted rapidly from record highs to correction territory in the span of just a few weeks, a reversal that has rattled sentiment even as the broader structural case for continued AI and semiconductor investment remains a subject of active debate among analysts and fund managers watching the sector closely.