Japan's Nikkei Plunges Amid Rising Rate-Hike Expectations

Japan's Nikkei 225 plummeted nearly 2% on Monday as investors fled riskier assets due to growing expectations of a Bank of Japan rate hike next month.

The decline was triggered by hawkish comments from the Federal Reserve, which reinforced that inflation remains a top priority. This has led markets to lean towards higher US interest rates, cooling appetite for pricier stocks globally.

In Japan, investors increasingly believe a Bank of Japan rate increase is imminent, causing Japanese government bond yields to hit fresh multi-decade highs. Higher yields affect the 'discount rate' investors use to value future profits, weighing heavily on long-duration shares like growth and tech.

Takayuki Miyajima at Sony Financial Group noted that while risk sentiment is shaky after last week's US pullback, financial stocks could see interest due to higher domestic rates lifting what banks and insurers earn on lending and investments.