Tokyo Stocks Weaken on Rising Rates; Nikkei Drops 593 Points, Chips Sold

2026-05-18

Why the Nikkei Kept Falling

In Tokyo trading on the 18th, the Nikkei Stock Average fell for a second straight session, closing down 593.34 yen, or 0.97%, from the previous week’s close at 60,815.95 yen. As long-term interest rates rose in both Japan and the U.S., profit-taking dominated, especially in overheated artificial intelligence (AI) and semiconductor-related stocks. At one point, the decline topped 1,000 yen.

Rising Long-Term Rates Weigh on Markets

In the domestic bond market, the yield on the newly issued 10-year government bond, a benchmark for long-term rates, briefly rose to 2.8%, pushing bond prices lower. That was said to be the highest level in about 29 and a half years. With no end in sight to tensions in the Middle East and concerns lingering over inflationary pressure from persistently high crude oil prices, worries over worsening public finances are also fueling upward pressure on rates. U.S. long-term rates also rose to the upper 4.5% range on the previous Friday, the 15th, reaching their highest level in about a year.

Profit-Taking in Chip Stocks

In periods of rising rates, higher-PER semiconductor stocks tend to look expensive because future earnings are discounted back to present value. At the start of the week in Tokyo, selling spread across AI and semiconductor-related stocks that had been leading the market. Advantest fell 0.79% from the previous trading day, while Tokyo Electron lost 2.04%. In the U.S. market on Friday the 15th, all three major indexes, including the Nasdaq Composite, declined, and the Philadelphia Semiconductor Index (SOX) also fell 4.01%.

Kioxia Surges Sharply

Against this backdrop, Kioxia Holdings stood out with a strong gain. From the morning session, it traded at 51,450 yen, up 7,000 yen from the previous trading day and at the upper limit of its daily price range, and it was allotted at that level. The company’s announced outlook on the 15th for consolidated net profit for April–June 2026 under International Financial Reporting Standards was 869 billion yen, about 48 times the same period a year earlier, far above the QUICK consensus estimate of 405.6 billion yen.

Still, many see only limited spillover effects. Daiki Takei, a strategist at Resona Holdings, said, "Kioxia is being driven largely by company-specific earnings factors, so it is unlikely to spill over to other semiconductor-related names." Nvidia, the U.S. chip giant, is scheduled to announce earnings on the 20th, but some observers say rate-hike concerns could also weigh on the market.

Investor Sentiment Remains Cautious

The sense of overheating around semiconductor stocks remains strong. Ai Gotoh, a woman investor in her 30s living in Tokyo, said, "Kioxia shares have risen sharply and may need a quick correction. I want to wait and see a bit longer before considering a purchase." On the other hand, some say expectations for AI remain high. Toshiyuki Oyama, a market analyst at Matsui Securities, noted, "Investors’ expectations for the AI growth story are still intact. This week’s U.S. Nvidia earnings report is expected to beat market forecasts and may include a dividend increase, so AI and semiconductor-related stocks could regain momentum."

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