Global Market: Japan's Nikkei falls 3% as AI spending concerns hit chip stocks; BOJ holds rates

Japanese shares tumbled on Friday, with the Nikkei 225 falling as much as 3%, as concerns over the sustainability and profitability of artificial intelligence investments triggered a sell-off in technology stocks across global markets, Reuters reported.

The decline followed overnight losses on Wall Street, where disappointing reactions to earnings from Amazon.com and Intel intensified concerns about the enormous capital expenditure required to fund the AI boom. Both companies reported substantial cash outflows, weighing on their shares and technology peers in extended trading.

Read more: Global Market Today: Asian stocks slide as tech earnings disappoint, AI fears mount


The benchmark Nikkei 225 was down 2.8% at 50,200 GMT, after earlier falling 3%, with chip equipment manufacturers among the biggest losers. Advantest plunged 9.1%, while Tokyo Electron declined 5.6%.

According to Reuters, concerns over the profitability of AI investments have increasingly weighed on technology shares, with Japanese equities particularly vulnerable to weakness in US technology stocks.

Trading has remained volatile throughout the week as earnings announcements from companies in Japan, the United States and South Korea triggered sharp movements in technology shares.

Despite Friday's decline, the Nikkei remained up 0.2% for the week. The broader Topix index fell 1.3% on Friday and was on course to lose 0.4% for the week.

Read more: US Markets Today: US stocks end lower as Alphabet revenue miss revives AI capex jitters

BOJ holds interest rates at 1.25%
Adding to the market focus, the Bank of Japan (BOJ) kept its short-term policy interest rate unchanged at 1.25% on Friday, as widely expected, following a two-day monetary policy meeting.

The decision was taken by an 8-1 majority, with board member Hajime Takata dissenting and proposing a 25-basis-point increase to 1.5%. The central bank also raised its inflation forecast and reiterated its readiness to continue increasing borrowing costs to contain the risk of inflation overshooting its 2% target.

The decision keeps the door open for another rate hike as soon as December, with investors looking for further guidance from BOJ Governor Kazuo Ueda's post-policy meeting news conference.

Reuters reported that the central bank's focus has increasingly shifted towards preventing underlying inflation from rising excessively, marking a more hawkish phase in its monetary policy approach.

Chip and AI stocks lead losses
Among individual stocks, chip-related companies bore the brunt of Friday's sell-off. Ibiden plunged 15.2%, while Lasertec dropped 13.8%. SoftBank Group, which has significant exposure to the AI investment theme, declined 6.7%.

Of the Nikkei's 225 constituents, 123 stocks fell, 100 advanced and two remained unchanged.

However, earnings-related optimism supported some stocks. Game maker Konami jumped 15.3%, emerging as the biggest percentage gainer on the Nikkei. Oriental Land, operator of Tokyo Disney Resort, followed with a 6.6% advance.

Oil prices provide some support
Elsewhere, optimism surrounding Middle East peace negotiations and the resulting decline in crude oil prices offered some support to Japanese equities.

Japan, which relies heavily on imported energy, particularly supplies from the Middle East, remains vulnerable to fluctuations in global oil prices. Lower crude prices can ease import costs and reduce inflationary pressures on the country's economy.

However, the weakness in global technology shares and concerns over the returns from massive AI investments overshadowed these supportive factors on Friday.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)