Nikkei slips as Asian markets reel from AI trade unwind

The Nikkei 225 closed lower on Wednesday as Asian markets struggled after a rapid unwind of trades tied to artificial intelligence. Investors reduced holdings in technology and semiconductor stocks and shifted funds into government bonds and the U.S. dollar.

MSCI’s index of Asia-Pacific shares outside Japan was little changed. South Korea’s KOSPI rallied more than 2% after a roughly 10% drop the previous day, its largest one-day fall since March. The Nikkei showed limited direction and finished in negative territory.

The pullback followed losses on Wall Street, where the Nasdaq fell about 2.2% and the S&P 500 dropped around 1.4%. Investors questioned whether heavy, debt-funded spending tied to AI can continue to support current valuations. Semiconductor stocks bore the brunt of the selling.

Demand for government bonds increased and the dollar strengthened. The dollar index traded near a 13-month high. The yen was around 161.57 per dollar, close to levels that previously prompted intervention concerns.

The Bank of Japan raised its policy rate to 1.0% this month, the highest level since the mid-1990s, and some board members signaled support for further moves toward neutral policy settings. Higher rate expectations weighed on gold, which slipped as investors reduced holdings of non-yielding assets.

Brent crude traded near $76.71 a barrel and U.S. crude around $72.85, both close to four-month lows after increased tanker traffic through the Strait of Hormuz following weeks of disruption linked to tensions with Iran. The United States and Iran remain divided over issues including nuclear inspections and navigation, leaving oil vulnerable to new shocks.

Trading took on a defensive tone as investors pared crowded growth positions and sought liquidity and safety. Analysts pointed to the speed of recent swings, on both the upside and downside, as a factor in the region’s fragile market backdrop. Market participants are watching AI-related valuations, the dollar’s path and central bank decisions for signals of the next market direction.