Japan's Nikkei slumps more than 5% as market rout deepens on AI worries

TOKYO: Japan’s Nikkei share average fell more than 5% on Friday, as heavyweight technology stocks plunged over fears of tighter regulation and a potential slowdown in AI-related spending following the Democrats’ sweep in the US midterm elections.

The selloff tracked sharp overnight declines on Wall Street, where the S&P 500 and Nasdaq Composite posted their steepest daily falls since April 2025.

Friday’s drop extended a rout in Japanese chipmakers and AI-linked stocks that began on Wednesday as election results emerged.

The tech-heavy Nikkei was down 5.3% at 57,858.61 as of the midday break, heading for its worst day in eight months.

The selloff was broad-based, with 221 of the index’s 225 components declining, while three rose and one traded flat.

The broader Topix lost 5.4%, with all 33 industry sectors sliding.

However, the markets were off session lows.

The Nikkei had fallen as much as 7.1% at one point.

The Nikkei’s biggest drags were the erstwhile darlings of the AI trade, with startup investor SoftBank Group slumping 9.3% and chip-testing equipment maker Advantest down 4.6%.

“Going forward, there’s potential for continued volatility as concerns resurface from time to time over issues such as delays in AI data-center construction and AI development, as well as rising costs that could cast doubt on AI companies’ profitability,” said Maki Sawada, a strategist at Nomura Securities.

“Rather than seeing an across-the-board rise in AI-related stocks as has been the story until now, the market is likely to take a more selective, stock-by-stock approach.”

A gauge of Nikkei volatility rose to its highest since March 31 on Friday.

The benchmark index has fallen every day this week and is on track for a weekly loss of 8.6%, which would be its worst showing since March last year.