Nikkei Tumbles as BOJ Rate Hike Expectations Rise Amid US Inflation Focus

Japan's benchmark Nikkei 225 index dropped nearly 2% on August 31, as investors reacted to growing expectations of tighter monetary policy in Japan and renewed prospects of a US interest rate hike. The Nikkei 225 declined 1.97% to 65,096.63, while the broader Topix fell 0.84% to 4,111.71.

The decline followed losses on Wall Street last week after Federal Reserve Chair Kevin Warsh reiterated the US central bank's focus on controlling inflation. Market expectations that the Bank of Japan (BOJ) could raise interest rates at its next meeting have strengthened, with Japanese government bond yields climbing to fresh multi-decade highs.

Takayuki Miyajima, senior economist at Sony Financial Group, noted that the recent weakness in US stocks and rising expectations of US rate increases could weigh on investor sentiment. However, he added that Japanese financial stocks could benefit from expectations of higher domestic interest rates.