The selloff triggered by the retreat of AI-related trades is spreading from Wall Street to Asian markets.
Japan's Nikkei 225 index is approaching a technical bear market as investors unwind AI-related positions, while Japanese government bonds rose on Friday, following the rally in US Treasuries, as global risk aversion intensified further.
The Nikkei 225 has fallen significantly since late June and faces the risk of entering a technical bear market with a 20% decline from its peak.
The performance gap between the tech-heavy Nikkei 225 and the broader Topix index has widened to the largest in decades, highlighting the impact of concentrated unwinding of AI-related trades on Japanese equities.
On Wall Street, the decline in chip stocks intensified and spread after the election, with investors selling tech shares on speculation that the Democratic Party will crack down on the AI industry.
The Nasdaq 100 fell 6.4% on Thursday, its worst single-day performance since March 2020, wiping out $2.3 trillion in market value; a key gauge of chip giant performance dropped 12%.
As the US stock selloff spread to Asian markets, global risk aversion deepened further, with capital shifting from risk assets to government bonds.
US Treasuries surged on Thursday, and Japanese government bonds rose on Friday in tandem, with the benchmark 10-year Japanese government bond yield falling 7 basis points to 2.685%.
This rally in Japanese bonds comes as demand for Japanese debt has shown signs of improvement after yields rose to multi-decade highs this year.
As yields rise and demand from domestic investors and foreign buyers recovers, the market environment continues to improve, and global fund managers have become more positive on long-term Japanese government bonds.
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