Japan’s Nikkei Plummets Over 3% Due to Chip and Middle East Worries

Japan’s Nikkei 225 Stock Average experienced its largest weekly drop since June 2022, as global stock markets faced a selloff due to concerns over US interest rates and escalating tensions in the Middle East. The index fell by 2.7%, recovering slightly from earlier losses that had put it on track for a technical correction, dropping 10% below its all-time high.

The broader Topix Index also declined by 1.9%, with semiconductor companies like Tokyo Electron Ltd. leading the losses. The tech sector faced additional pressure after Taiwan Semiconductor Manufacturing Co. revised its outlook for the chip market expansion.

Just two months ago, the Nikkei had reached its historic 1989 high and set a new record in March. However, recent events have led to a rapid change in fortunes for the blue-chip gauge, with traders reducing bets on Federal Reserve rate cuts following hawkish comments from officials and positive US economic data.

Geopolitical tensions in the Middle East have further impacted global markets, raising concerns about trade risks and energy costs. Chip companies like Screen Holdings Co. and Lasertec Corp. were among the top decliners on the Nikkei, as TSMC highlighted weakness in the smartphone and personal-computing markets.

Analysts like Charu Chanana from Saxo Capital Markets Pte. emphasized the triple threat of Fed hawkishness, semiconductor earnings, and geopolitical concerns affecting market outlook. Naka Matsuzawa, chief strategist at Nomura Securities, advised caution in buying stocks until there is clarity on the Fed’s next move.

The recent market turmoil underscores the interconnectedness of global economies and the impact of geopolitical events on financial markets. Investors will be closely monitoring developments in the Middle East and US interest rate policies in the coming weeks.