Japan’s Nikkei fell into correction territory on Friday, as a global decline in chipmakers and an intensification of the Middle East conflict led investors to avoid risk assets. The benchmark Nikkei 225 experienced a decline of 4.03%, closing at 64,141.12, having previously dropped by as much as 6.18%. The index currently stands at a decline of 11.3% from its peak closing value of 72,366.34 recorded on June 25. The broader Topix declined by 2.72%, settling at 3,919.21. The decline followed overnight losses in U.S. equities, characterised by a significant drop in technology stocks, despite the presence of strong U.S. economic data and a robust corporate earnings season. Hawkish remarks from Federal Reserve officials on Thursday bolstered expectations for additional rate hikes in the U.S.

The Philadelphia SE Semiconductor index experienced a decline of 4.3% overnight, while the U.S.-listed shares of South Korean chipmaker SK Hynix fell by more than 13%. With South Korea’s market closed for a holiday, selling pressure intensified on Japan’s technology market, particularly on Kioxia Holdings, according to Daisuke Hashizume. “The long-term trend for AI and data centres is unchanged, but right now investors are worried that memory chip prices can rise sustainably,” Hashizume added. Geopolitical tensions persisted at heightened levels, as U.S. President Donald Trump issued threats regarding a potential expansion of military strikes on Iran.

Breadth exhibited a pronounced negative trend, as evidenced by 71 advancers in the Nikkei 225 juxtaposed with 152 decliners and two remaining unchanged. Kioxia experienced the most significant percentage drop in the index, plummeting 16.1%, marking its largest single-day decline since November 2025. It was followed by Sumco, which experienced a decline of 15.17%, and Screen Holdings, which saw a reduction of 12.04%. AI euphoria in Japan is reflected in the fortunes of Kioxia, a previously struggling chipmaker whose market capitalisation briefly exceeded that of Toyota last month.

However, its share price has declined by over 50% since that time. “I believe the market correction is dragging on as a reaction to the sharp rise that preceded it,” said Shoichi Arisawa. “That said, I don’t think the business environment surrounding AI and semiconductor companies, or the current outlook for semiconductor demand, has changed.” Seven & I Holdings emerged as one of the leading gainers in the Nikkei, experiencing an increase of 3.64% following the announcement that it is engaged in discussions to acquire a stake in the Polish convenience store operator Zabka Group.