The benchmark closed at 61,434.19, down 930.73 points, or 1.49%, after briefly dropping to 60,448.90. The index moved through a range of almost 2,700 points, having reached a session high of 63,138.04 during early trading.
The intraday slide from the high exceeded 1,700 points, reflecting unusually volatile trading rather than a fall of that size from Tuesday’s closing level. The index had ended the previous session at 62,364.92 after losing more than 2,500 points.
Semiconductor companies led the decline as investors questioned whether the vast sums being invested in AI infrastructure would generate returns quickly enough to justify elevated technology valuations. The selling was amplified by weakness in South Korea and Taiwan, whose markets contain some of the world’s largest memory-chip and contract-manufacturing companies.
Asian chipmakers had benefited from expectations that spending on data centres, advanced processors and high-bandwidth memory would continue expanding. Those assumptions are now facing closer scrutiny as capital expenditure rises, borrowing costs remain high and earnings expectations become more difficult to exceed.
The shift was visible in South Korea, where the Kospi suffered another severe fall and chip heavyweights came under sustained pressure. Taiwan’s benchmark also declined as investors sold shares exposed to the global semiconductor supply chain.
Tokyo-listed equipment makers and chip-related companies were caught in the same retreat. Their large influence on the price-weighted Nikkei magnified the index’s movements, leaving the broader market vulnerable to concentrated selling in a small group of expensive stocks.
Investors were also awaiting quarterly results from major US technology companies, including businesses whose spending plans have become central to demand forecasts for advanced chips. Any indication that data-centre expenditure is slowing could deepen concerns about the durability of the AI investment cycle.
The Nikkei’s decline followed a powerful rally that had carried the benchmark above 70,000 earlier in July. Despite the pullback, the index remained substantially higher than a year earlier, showing how quickly valuations had expanded during the AI-driven advance.
Currency movements added another layer of uncertainty. The yen remained near its weakest level against the dollar in about four decades, despite gaining slightly during Wednesday’s trading. A weaker currency generally supports exporters by increasing the yen value of overseas earnings, but an extreme decline raises import costs and complicates monetary policy.
Japan depends heavily on imported energy and raw materials. The yen’s depreciation, combined with higher oil prices, threatens to intensify inflation and squeeze household spending. It has also increased speculation that authorities may intervene in foreign-exchange markets.
Markets are watching for any disruption to the yen carry trade, in which investors borrow cheaply in Japan and direct the funds towards assets offering higher returns elsewhere. A sudden strengthening of the yen can force traders to unwind those positions, producing rapid declines across equities, bonds and currencies.
The Bank of Japan begins a two-day policy meeting on Thursday. Traders are assessing whether persistent currency weakness and rising energy costs could push officials towards tighter policy, even as instability in equity markets increases the risks surrounding another rate move.
Oil prices climbed more than 3% as conflict in the Middle East threatened shipping and energy supplies. Higher crude prices added to inflation concerns ahead of the US Federal Reserve’s policy announcement and reduced investors’ willingness to hold high-valuation growth stocks.
The dollar remained supported near a one-month high as traders considered whether the Federal Reserve could maintain a restrictive policy stance. Higher US yields tend to pressure technology valuations by reducing the present value of expected future earnings.
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