Japan's Stocks Decline Amid Tech Selling and Escalating Iran Tensions

Japanese Stocks Plummet Amid US Jobs Data and Middle East Tensions

Japanese equities took a hit on Friday, with tech shares leading the decline, as strong US jobs data fueled expectations that the Federal Reserve will maintain higher interest rates for longer. This sparked a selloff in the AI sector, with stocks such as SoftBank Group Corp. and Kioxia Holdings experiencing significant losses.

The tech-heavy Nikkei 225 Stock Average plummeted as much as 3.9% by 9:19 a.m. Tokyo time, marking its steepest decline since March 30. The broader Topix gauge slid as much as 2.4%, with electric appliances and machinery being the biggest drags.

The decline in Japanese stocks was also influenced by escalating tensions in the Middle East, after Iran fired several rounds of missiles toward Israel. This move exacerbated tensions in the region and weighed on investor sentiment. The US is pushing to preserve a faltering ceasefire, but there are no signs of improvement in the standoff between the US and Iran.

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Investors are also awaiting the Federal Reserve's decision next week, which could further impact the market. As a result, the market correction may persist for the time being. Technology and AI-related stocks, including SoftBank Group Corp. and Kioxia Holdings, which reached record highs earlier this month, dropped after the Nasdaq 100 dropped about 5% and the Philadelphia Semiconductor Index slid 10% on Friday.

Concerns had already been mounting over lofty technology stock valuations and the sustainability of the AI-fueled rally. Japanese companies have benefited from the boom, though to a lesser extent than their South Korean peers. For example, memory-chip maker Kioxia soared more than 600% this year through Friday, while SoftBank climbed nearly 70%.

Traders are also increasing bets on a Bank of Japan rate hike when policymakers meet next week, as officials grapple with mounting upside risks to inflation. Defensive sectors, including pharmaceutical and telecommunications, provided some support to the market.

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Investor sentiment is likely to be weighed by escalating tensions in the Middle East, following Iran's missile launches toward Israel. The Israel Defense Forces warned that additional barrages could follow, although all incoming missiles were intercepted or landed in open areas.