Japan's Nikkei falls, JGBs surge as AI jitters spur haven demand

By Rocky Swift

TOKYO, Oct 23 (Reuters) - Japan's Nikkei share gauge fell on Friday, while the nation's bonds surged and its currency touched a one-month high as heightening concerns about the AI sector spurred demand for haven assets.

The benchmark Nikkei 225 .N225 fell 0.34% to close at 62,693.16, trimming an earlier decline of more than 2%. The broader Topix .TOPX slipped 0.79% to 3,965.81.

The tech-heavy Nasdaq slid 2.6% overnight as investors rotated into defensive areas such as consumer staples and healthcare. AI bellwether Nvidia NVDA.O sank about 4%, while Meta META.O fell nearly 8% as investors grew cautious about AI spending plans detailed in its earnings. Tesla TSLA.O fell 3.1% after earnings and a cut to its 2026 capital spending plans.

With major Japanese companies due to report results from next week, influences from overseas markets are overwhelming scarce domestic trading cues, said Wataru Akiyama, an equities strategist at Nomura Securities.

"We are currently in the period when the freshness of information regarding (Japanese) earnings forecasts is at its lowest," Akiyama said. "The fall in shares is occurring against a backdrop of heightened caution regarding earnings growth in the AI market."

There were 81 advancers on the Nikkei 225 against 144 decliners.

The yield on the benchmark 10-year Japanese government bond dropped 8 basis points (bps) to 2.8%, poised for its lowest since August 7 and down from a three-decade high of 3.115% touched earlier this month. Yields move inversely to bond prices.

The yield has fallen for five straight sessions, losing 13 bps to mark the sharpest weekly decline since April 2025.

“The bond market is increasingly trading a relative-haven story," Masahiko Loo, senior fixed income strategist at State Street Investment Management, said in a note. "After years of avoiding duration, Japanese real-money investors are gradually warming back up to JGBs as yields become investable again."

“The yen is beginning to participate as well," he added.

The yen, which sank to a four-decade low of 163.99 per dollar in July, rallied on Friday to as strong as 156.08, a level not seen since September 18.

Data on Friday showed Japan's core consumer inflation exceeded the central bank's 2% target in September for the first time in nine months, a sign of broadening price pressure that cements the case for a near-term interest rate increase. Even so, markets expect the BOJ will refrain from a consecutive hike at its meeting next week, waiting until its meeting in December or later.

The two-year yield , the one most sensitive to central bank policy rates, fell 4 bps to 1.86%.

Friday's inflation data "keeps the BOJ on course to upgrade its inflation outlook next week while holding at 1.25%," said Shoki Omori, chief fixed-income strategist for Japan at Deutsche Bank. "We continue to expect the next hike in January."