Nikkei falls, AI and real estate sold on yields

2026-05-20

In Tokyo trading on the 20th, the Nikkei Average fell for a second straight session, ending the morning at 59,764, down 786 points from the previous day. At one point, the decline topped 1,200 points, pushing the index below 60,000 for the first time in about three weeks. Rising global interest rates are weighing on artificial intelligence-related stocks that had driven the market higher.

AI rally goes into reverse

Yoshitaka Suda, cross-asset strategist at Nomura Singapore, said rising rates are reversing buying in AI shares. In the domestic bond market, the long-term yield briefly rose to 2.8% between the 18th and 19th, marking its highest level in 29 years.

Broad selling on higher rates

Inflation concerns have intensified on higher crude oil prices, keeping investors in risk-off mode. Selling in AI semiconductor stocks stood out in Tokyo trade on the 20th, with SoftBank Group at one point down 9% and Tokyo Electron down 5%. In a high-rate environment, growth stocks with strong earnings expectations are more likely to be seen as expensive.

Fujikura fell 8% on the 20th after a medium-term business plan announced on the 19th fell short of market expectations. Over the past five trading days, the stock has dropped more than 40%. Real estate shares were also weighed down by higher rates, with Sumitomo Realty & Development down 4% and hitting a fresh year-to-date low for a second straight day. Mitsubishi Estate and Mitsui Fudosan also fell.

Concern spreads to construction shares

Construction stocks, long seen as potential beneficiaries of inflation, also slumped sharply. Masao Matsumoto, chief strategist at Okasan Securities, said rapid inflation and surging material costs could leave firms unable to pass on prices and saddled with unprofitable projects. Taisei and Kajima fell, and the TOPIX industry sub-index for construction hit a year-to-date low.

Markets are now focused on earnings from US chip giant Nvidia, due to be released on the 20th US time, or the 21st in Japan. Masatsugu Akutsu, chief Japan equity strategist at BofA Securities, said investors are wary of the risk that valuation concerns could take hold.

On the other hand, Suda of Nomura Singapore said expectations for an upside surprise remain strong when looking at the options market. Nvidia is increasingly expected to beat market forecasts, making the stock reaction afterward difficult to predict, he said. Suda added that to judge the durability of the rally, the key will be not only the earnings results but also Nvidia shares' performance after the announcement.

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