Stocks in Tokyo fell Monday following a downgrade of the U.S. credit rating that sent tremors through global financial markets.
The benchmark Nikkei 225 index closed down 0.7%, finishing the day at 37,498.63, as investors reacted to renewed concerns about American fiscal stability and rising geopolitical risks.
The slide comes after Moody’s Investors Service lowered the U.S. government’s credit rating from Aaa to Aa1, citing unsustainable debt levels and long-term fiscal uncertainty.
The downgrade, which surprised markets, triggered broad selling in equities across Asia and Europe. Japanese investors, closely tied to U.S. economic performance, were quick to follow the cautious tone.
“This wasn’t entirely unexpected, but the timing caught many off guard,” said Kenji Nakamura, chief strategist at Mitsui Securities in Tokyo.
“There’s a sense now that markets are bracing for something deeper — whether it’s tighter monetary policy or more instability out of Washington.”
Monday’s losses in Tokyo follow a period of heightened volatility. Just weeks earlier, the Nikkei suffered its third-largest point drop on record amid fears of a global economic slowdown tied to rising U.S. tariffs and weakening trade.
The yen inched higher against the dollar, a sign that investors were seeking safety in Japanese assets.
Bond yields fell as demand for government debt rose, echoing similar moves across safe-haven markets.
While some traders expect the impact of the downgrade to be short-lived, others warned that continued uncertainty in Washington could cast a longer shadow.
“Japan’s economic recovery is still fragile,” said Ayumi Tanaka, a Tokyo-based economist. “Any external shock — especially from the U.S. — reverberates here almost immediately. Today’s reaction may just be the beginning.”
The Tokyo Stock Exchange is expected to remain under pressure as global investors assess the fallout.
Attention will turn this week to U.S. Federal Reserve signals and upcoming Japanese corporate earnings, both of which could shape market sentiment heading into summer.
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