Nikkei Plunges 3.11% Amid Inflation Fears

Japan's Nikkei 225 stock index plummeted by 3.11% on Friday as concerns about inflation and rising US Treasury yields took center stage. The market slide was triggered by a combination of factors, including increasing oil prices and fresh data on US producer prices. This renewed uncertainty has investors bracing for the possibility of another interest rate hike from the Federal Reserve.

The Nikkei's decline is closely tied to the valuation math affected by higher yields. When US Treasury yields rise, the discount rate used to value future corporate profits also increases, making shares in 'long-duration' companies seem less valuable. This phenomenon particularly affects chip and materials firms, which rely heavily on growth prospects in the distant future.

The impact of rising crude prices further exacerbates the pressure on these sectors by increasing input costs and keeping inflation expectations high. However, energy-linked companies like Inpex can benefit from this trend due to their direct exposure to oil prices.