Nikkei Plunges 3,318 Points as AI Selloff Shakes Tokyo

The broader TOPIX fell 97.44 points, or 2.38%, to 3,999.34, closing below 4,000 for the first time in about two months. The Nikkei declined for a sixth consecutive session, having lost more than 6,000 points since reaching 70,684 on October 6.

Selling began immediately after the opening bell and accelerated as investors reduced exposure to high-priced semiconductor and AI-related companies. The Nikkei fell more than 3,600 points at one stage, touching 64,093 before recovering slightly into the close.

Trading was exceptionally heavy. Turnover on the Tokyo Stock Exchange’s Prime Market reached approximately 10.14 trillion yen, with volume of 3.03 billion shares. Declining stocks numbered 948, compared with 564 gainers and 40 unchanged, reflecting widespread selling beyond the technology sector.

The central concern was a sharp reassessment of the financial risks underlying the global AI investment boom. U.S. cloud-computing provider CoreWeave came under pressure after its corporate bonds fell sharply, prompting investors to question whether highly indebted AI infrastructure companies can generate sufficient earnings and cash flow to support their expansion plans.

CoreWeave, which provides computing capacity built around advanced AI chips, has accumulated substantial debt while investing heavily in data centers and processing equipment. Its difficulties have raised broader concerns about companies financing AI expansion through borrowing rather than internally generated cash flow.

The selloff followed stronger-than-expected U.S. inflation data released on October 14, which renewed speculation that the Federal Reserve could raise interest rates again sooner than previously anticipated.

Higher borrowing costs would be particularly challenging for AI infrastructure companies undertaking multibillion-dollar investments in data centers, advanced processors, cooling systems and power supplies. They would also increase the discount rates investors use to value future earnings, putting additional pressure on technology shares with high valuations.

U.S. markets had already weakened sharply overnight. The Nasdaq Composite declined 1.88%, while the Philadelphia Semiconductor Index fell approximately 4.3%. Nvidia lost around 3%, and Oracle declined about 9%, adding to concern about the cost and profitability of AI infrastructure development.

That weakness spread rapidly through Asia. South Korea’s Kospi fell more than 7%, triggering a temporary trading halt, as Samsung Electronics and SK Hynix suffered heavy losses. Taiwan’s technology-heavy market also declined sharply.

The regional selloff was especially damaging for Tokyo because Japan has become one of the world’s most important suppliers of semiconductor equipment, chip-testing technology, advanced substrates, optical fiber and electronic components used in AI infrastructure.

Advantest was the biggest drag on the Nikkei, falling nearly 15%. The chip-testing equipment maker alone reduced the index by more than 1,300 points, demonstrating the extraordinary influence a small number of high-priced semiconductor stocks now exert over the benchmark.

Tokyo Electron also declined sharply, along with Lasertec, Ibiden and Kioxia Holdings. SUMCO, a major supplier of silicon wafers, dropped nearly 14%, while Lasertec lost more than 13%.

SoftBank Group fell heavily as investors reassessed the risks associated with large-scale AI investments. The company’s exposure to OpenAI, Arm and digital infrastructure makes it one of the Tokyo market’s most prominent representatives of the global AI expansion.

The pressure on SoftBank was particularly significant because investors have become increasingly concerned about the financial commitments required to support AI development. With borrowing costs remaining elevated, companies investing heavily in infrastructure face greater pressure to demonstrate that commercial returns will justify their spending.

Kioxia also came under strong selling pressure. The company has benefited from expectations of sustained demand for memory and storage systems used in AI servers, but its volatile share price makes it particularly sensitive to changes in global semiconductor sentiment.

Fujikura and Ibiden declined as investors reduced exposure to companies supplying the physical infrastructure required for AI expansion. Fujikura’s optical-fiber and communications technologies and Ibiden’s advanced semiconductor substrates remain strategically important, but the selloff showed that investors were no longer distinguishing sharply between individual parts of the AI supply chain.

The deterioration in sentiment came despite strong earnings from Taiwan Semiconductor Manufacturing Co. The world’s largest contract chipmaker reported better-than-expected third-quarter profit on October 15, but the results failed to reverse the decline in Japanese semiconductor shares.

Investors had already anticipated strong performance from TSMC, and the earnings announcement did little to resolve the more immediate concern over whether AI infrastructure companies can finance expansion profitably.

The significance of the October 15 decline extends beyond a normal correction in technology shares. For much of 2026, Japanese equities have benefited from expectations that artificial intelligence investment would continue expanding rapidly, supporting demand for semiconductor manufacturing equipment, memory, optical networks, advanced materials and power infrastructure.

The latest selloff suggests investors are questioning not necessarily whether AI demand will grow, but how quickly that demand can produce sufficient returns to justify the enormous amounts of capital being committed.

Debt markets have become central to that assessment. Credit insurance costs for several AI-related companies have risen, while yields on some highly leveraged cloud-computing companies’ bonds have reached distressed levels.

CoreWeave’s financial pressures have become a particular focus because of its large capital commitments and dependence on external financing. The concern is that expensive computing equipment must generate enough revenue over its useful life to cover depreciation, power costs, financing expenses and additional investment.

A slowdown in financing could ultimately affect companies throughout the supply chain, even when underlying demand for AI services remains substantial. Japanese equipment and component suppliers could face greater uncertainty over the timing of orders and investment projects.

The sharp market decline also reflected renewed pressure from U.S. monetary policy. September U.S. consumer inflation exceeded forecasts, raising concern that the Federal Reserve may have less room to maintain interest rates at current levels.

For Japanese investors, the consequences are complicated. Higher U.S. rates can support the dollar against the yen, potentially benefiting Japanese exporters, but they also increase financing costs and put pressure on technology valuations worldwide.

The yen remained relatively weak, trading around 158 per dollar during the session. Normally, that would provide some support for Japan’s exporters, but the scale of the global technology selloff overwhelmed the currency advantage.

Japan’s own monetary policy outlook added uncertainty. Bank of Japan policy board member Junko Koeda warned on October 15 against excessive caution in raising interest rates, arguing that upside inflation risks remain significant.

Koeda pointed to strong AI-related demand, higher energy costs and the weak yen as factors that could sustain inflation pressure. Her comments reinforced the possibility of further BOJ tightening after the central bank raised its policy rate to 1.25% in September.

Although the BOJ has already moved interest rates to their highest level in more than three decades, policymakers continue to face a difficult balance between controlling inflation and supporting economic growth.

Higher rates can help contain inflation expectations and reduce excessive currency weakness, but they also increase corporate borrowing costs, mortgage expenses and government debt-servicing obligations.

The policy challenge is made more difficult by high energy prices. Japan remains heavily dependent on imported fuel, and the prolonged Middle East conflict continues to affect oil markets, transport costs and household budgets.

On October 15, Finance Minister Satsuki Katayama stressed the importance of monitoring currency movements with a high sense of urgency at a Group of 20 meeting held alongside international financial discussions in Bangkok.

Katayama reiterated Japan’s concern about excessive exchange-rate volatility while emphasizing the importance of maintaining fiscal sustainability alongside growth-oriented spending.

The government’s economic strategy remains another important factor. Economy Minister Minoru Kiuchi said on October 15 that the BOJ’s independence should be respected, while rejecting suggestions that the administration’s economic agenda was based on a return to aggressive reflationary policy.

Kiuchi argued that Japan has moved beyond the deflationary conditions that shaped economic policy for decades and should now be assessed as an economy pursuing sustainable growth through higher wages, productivity and strategic investment.

The administration is pursuing a long-term investment program targeting semiconductors, artificial intelligence, quantum technologies and other strategic industries, with public and private investment of more than 370 trillion yen envisioned through fiscal 2040.

That strategy provides long-term support for many Japanese technology and manufacturing companies. However, the October 15 market collapse highlighted the difficulty of sustaining investment enthusiasm when global financing conditions deteriorate.

The selloff also triggered a rotation toward defensive shares. Pharmaceuticals emerged as the strongest-performing sector in Tokyo, with investors favoring businesses whose earnings are less directly dependent on AI capital spending.

Sumitomo Pharma rose nearly 16%, becoming the Nikkei’s biggest percentage gainer. Takeda Pharmaceutical gained about 5%, while Otsuka Holdings and Astellas Pharma also advanced.

Retailer Ryohin Keikaku, operator of the Muji chain, climbed more than 9%, demonstrating that investors remained willing to buy companies with favorable individual business prospects despite the broader market decline.

KDDI, Bandai Namco Holdings and Mitsubishi Estate were also among the gainers. Fast Retailing provided some support to the Nikkei, although its positive contribution was small compared with the losses generated by semiconductor shares.

The contrast between technology and defensive sectors underscored a change in investor priorities. Companies with established cash flows, predictable earnings and less dependence on external borrowing attracted greater interest as the market reassessed the risks associated with highly capital-intensive growth strategies.

Japan’s broader economic outlook remains mixed. The International Monetary Fund expects Japanese growth to slow to 0.7% in 2026, reflecting pressure from energy prices and the weak yen, while anticipating gradual BOJ tightening toward a neutral policy setting.

For households, the challenges remain substantial. Higher energy and import costs continue to affect food, electricity, transport and services, while rising interest rates may eventually increase borrowing costs.

For businesses, higher financing costs create another obstacle at a time when wages, logistics and raw-material expenses remain elevated. Companies without sufficient pricing power may face pressure on profit margins, even if nominal revenues continue increasing.

The October 15 selloff therefore exposed two different risks facing corporate Japan. Technology companies must demonstrate that extraordinary AI investment will produce sustainable returns, while domestic businesses must manage inflation, rising labor costs and a monetary environment that is no longer defined by ultra-low interest rates.

The Nikkei’s decline also raised technical concerns. The index has retreated sharply since moving above 70,000 earlier in October, and its break below 65,000 has weakened the short-term market outlook.

The immediate question is whether buying returns to semiconductor heavyweights such as Advantest, Tokyo Electron, Kioxia, SoftBank Group, Fujikura and Ibiden after their steep declines.

Investors will also monitor developments in U.S. corporate credit markets, particularly whether the selloff in bonds issued by AI infrastructure companies spreads to other borrowers or begins affecting capital spending plans.

U.S. inflation data and comments from Federal Reserve officials will remain important for expectations about further rate increases. A sustained rise in borrowing costs would increase pressure on leveraged AI businesses and make recovery in high-valuation technology shares more difficult.

The BOJ’s next policy meeting at the end of October will provide another test for Japanese markets, with investors looking for guidance on the timing of further rate increases and the central bank’s assessment of inflation.

The yen near 158 per dollar, oil prices above $100 and Japanese government bond yields will remain important indicators of pressure on businesses, consumers and financial markets.

The next stage of trading will depend heavily on whether investors regard October 15 as an exaggerated reaction to financing concerns or the beginning of a broader reassessment of AI valuations and investment returns.