Japan's Nikkei falls as higher yields, inflation fears weigh

By Junko Fujita

TOKYO, Oct 20 (Reuters) - Japan's Nikkei share average fell on Tuesday, dragged lower by technology stocks as investors weighed rising bond yields and persistent inflation concerns that clouded the outlook for growth shares.

The Nikkei .N225 fell 0.86% to 64,360.16 by 0204 GMT, while the broader Topix .TOPX slipped 0.95% to 4,028.97.

"Bond yields are on the rise as markets expect central bank tightening to fend off inflation," said Koji Toda, senior fund manager at Resona Asset Management.

"This anxiety weighs on investor sentiment. US technology stocks rose overnight, but they are cautious about whether this momentum will continue."

The tech-heavy Nasdaq Composite gained 1% overnight as investors returned to the chip sector and other AI-related stocks after last week's bruising selloff, while awaiting key corporate earnings reports. .N

Nasdaq futures recouped early losses to trade flat in Asian trading.

US Treasury yields rose overnight, with the benchmark 10-year yield coming off its biggest weekly drop in seven months, as concerns about the impact of higher interest rates on AI-related stocks eased.

In Japan, AI investor SoftBank Group 9984.T fell 6%, making it the biggest drag on the Nikkei and the index's worst performer by percentage.

Fibre optic cable maker Fujikura 5803.T fell 5.49% and peer Furukawa Electric 5801.T lost 4.88%.

Chip-testing equipment maker Advantest 6857.T reversed early losses to edge up 0.32%.

Uniqlo-brand owner Fast Retailing 9983.T rose 0.65% to provide the biggest support for the Nikkei.

Banks fell, with Mizuho Financial Group 8411.T slipping 2.87%, while Mitsubishi UFJ Financial Group 8306.T lost 1.61%.

The Topix value index .TOPXV lost 1.17%, while the growth index .TOPXG was down 0.62%.

Of more than 1,500 stocks trading on the Tokyo Stock Exchange's prime market, 76% fell, 20% rose and 2% traded flat.