AI Selloff Deepens: Japan’s Nikkei Enters Bear Market as SoftBank Plunges 11%
TREE NEWS reports: Japan’s Nikkei 225 index officially entered bear market territory on Wednesday, closing more than 20% below its recent peak as a global selloff in artificial intelligence-related stocks intensified. The benchmark index fell 2.5% on the day, extending a weeks-long decline that has erased trillions of yen in market value. SoftBank Group, a major investor in AI and technology startups, slid 11% — its worst single-day drop in over a year — dragging the index lower.
The selloff was triggered by a combination of factors: disappointing earnings from several AI-focused companies, rising global bond yields, and growing skepticism about the near-term profitability of AI investments. Investors have been rotating out of high-valuation technology stocks and into defensive sectors, a move that has accelerated in recent sessions.
Market Implications
Equities: The AI-driven rally that has powered global equities for much of the past year appears to be unwinding. In Japan, the Nikkei’s drop into bear market territory underscores the fragility of the export-heavy index, which is heavily weighted toward technology and industrial names. In the U.S., futures pointed to a lower open, with Nasdaq-100 futures down over 1%. Semiconductor stocks, which have been the biggest beneficiaries of the AI boom, are likely to face continued pressure.
Bonds: Rising bond yields have been a key catalyst for the equity selloff. As yields climb, the discounted present value of future earnings for high-growth companies falls, making them less attractive. The 10-year U.S. Treasury yield has risen to multi-month highs, and the Bank of Japan’s gradual policy normalization could further push Japanese yields higher, adding to global bond market volatility.
Crypto: Digital assets have not been immune. Bitcoin and other major cryptocurrencies have shown a positive correlation with tech stocks in recent months, and a sustained risk-off move could weigh on crypto prices. However, crypto may find support from investors seeking alternatives to traditional equities if the selloff broadens.
Commodities: Industrial metals could face headwinds if the AI-driven demand narrative weakens, particularly for copper, which is used in data centers and power infrastructure. Gold, meanwhile, may benefit as a safe-haven asset amid equity market turmoil.
Currencies: The Japanese yen has strengthened as risk aversion increases, a typical safe-haven flow. A stronger yen could further pressure Japanese exporters’ earnings, creating a negative feedback loop for the Nikkei. The U.S. dollar may also see safe-haven demand, though the Federal Reserve’s policy path remains a key variable.
Key Takeaways for Investors
- Valuation reset: The AI trade has been crowded and expensive. A correction is healthy for long-term market stability, but investors should brace for further volatility.
- Diversification matters: Portfolios heavily concentrated in AI and tech stocks are vulnerable. Consider rebalancing toward defensive sectors and asset classes.
- Watch the yen: For Japan-focused investors, currency movements will be crucial. A stronger yen could amplify losses in Japanese equities.
- Long-term AI story intact: Despite the selloff, the structural drivers of AI adoption remain. Investors with a long horizon may view this as an opportunity, but timing the bottom is risky.
The coming weeks will be critical as more earnings reports and economic data provide clarity on whether this is a healthy correction or the start of a deeper downturn.
