Nikkei Index Drops Nearly 4% at Open, Year-to-Date Gains Narrow, Kioxia and SoftBank Both Slump

TradingKey - Japanese and South Korean stock markets opened significantly lower on Monday (June 8), extending the panic from last week's overnight plunge in U.S. tech stocks. The Nikkei 225 Index opened 0.9% lower and saw its decline widen rapidly, falling nearly 4% intraday to hit a low of 63,987, before recovering after dipping below the 64,000 psychological level.

Shares of semiconductor manufacturer Kioxia tumbled as much as 8.5% at one point, while SoftBank Group shares dropped 9%. Toyota Motor, which had not previously benefited significantly from the AI wave, remained relatively resilient.

Reasons for the plunge in Japanese stocks?

The plunge in Japanese stocks was primarily driven by a confluence of multiple factors.

Previously, the Philadelphia Semiconductor Index (SOX) in the U.S. plunged 10.26% last Friday, June 5 (ET), marking its largest single-day drop since March 2020, as Broadcom tumbled over 15% after its AI chip sales guidance missed expectations.

Meanwhile, U.S. non-farm payrolls for May far exceeded expectations, causing market expectations for the Federal Reserve to resume interest rate hikes to surge, with the 10-year U.S. Treasury yield returning above 4.5%.

Equally significant but overlooked by many investors is that the persistent weakness of the yen has weighed on foreign risk appetite for Japanese equities, leading to a second consecutive week of net selling as USD/JPY once again touched the Bank of Japan's intervention window at 160.

Today's plunge in Japanese stocks coupled with circuit breakers in South Korean markets, together forming the strongest systemic correction in Asia-Pacific equity markets this year.

The Nikkei 225 has experienced a three-day losing streak, with year-to-date gains narrowing after a long period of strength driven by economic recovery and the AI supply chain boom. Data from Japan's Ministry of Finance shows that net foreign selling of Japanese stocks hit a new high for the year last week, as institutional capital accelerates its exit.

Investors should monitor the upcoming revised Q1 GDP data for Japan, the Bank of Japan's guidance on rate hikes in its June policy decision, and the movement of the 10-year U.S. Treasury yield. If the Nikkei falls below the 64,000 psychological level, the next key support level moves down to near 62,500.