Global AI trade retreats: Nikkei 225 approaches technical bear market, Japanese bonds rise in tandem with US Treasuries

The selloff triggered by the retreat from AI trades is spreading from Wall Street to Asian markets. Japan's Nikkei 225 Index is approaching a technical bear market as investors unwind AI-related trades, while Japanese government bonds rose on Friday, following the rally in US Treasuries, as global risk aversion intensified further. The Nikkei 225 has fallen significantly since late June and faces the risk of entering a technical bear market with a 20% decline from its peak. The performance gap between the tech-heavy Nikkei 225 and the broader Topix index has widened to the largest in decades, underscoring the impact on Japanese stocks from the concentrated unwinding of AI-related trades. On Wall Street, the post-election decline in chip stocks intensified and spread, with investors selling technology shares on speculation that the Democratic Party will crack down on the AI industry. The Nasdaq 100 fell 6.4% on Thursday, its worst single-day performance since March 2020, wiping out US$2.3 trillion in market value; a key gauge of chip giants' performance fell 12%. As the US stock selloff spread to Asian markets, global risk aversion deepened further, with capital shifting from risk assets to government bonds. US Treasuries surged on Thursday, and Japanese government bonds rose accordingly on Friday, with the benchmark 10-year JGB yield falling 7 basis points to 2.685%. The rally in Japanese bonds comes as demand for Japanese debt has shown signs of improvement after yields rose to multi-decade highs this year. With yields rising and demand from domestic investors and foreign buyers recovering, the market environment is steadily improving, and global fund managers have become more positive on long-term Japanese government bonds.