Why Japan is leading the global bond selloff

Asian stock markets experienced a sharp decline on Wednesday, driven by a significant sell-off in the semiconductor sector and rising bond yields. South Korea's KOSPI index plummeted 5.5%, while Japan's Nikkei 225 fell 2.4%. The MSCI AC Asia Pacific equity gauge dropped over 2%. Tech giants like Micron Technology and Nvidia suffered heavy losses, with Micron down 7% and Nvidia dropping 2.3%.

The pressure extended beyond the chip industry, as U.S. long-dated Treasury yields neared multi-decade highs, with the 30-year yield nearing 5.34% and the 10-year yield around 4.69%. Higher borrowing costs make richly valued technology stocks less attractive. Investors are closely watching the Federal Reserve's July meeting minutes and awaiting details on how policymakers view persistent inflation.

The U.S. will issue $16 billion of 20-year Treasury debt, while rising oil prices keep crude above $90 a barrel. In South Korea, KOSPI's decline triggered a trading halt due to intense selling pressure. The index's heavy concentration in Samsung and SK Hynix makes it particularly sensitive to semiconductor market swings. The broader AI trend remains intact, but investors are becoming more cautious, with 59% of fund managers hedging AI downside risk by rotating toward value, cyclical, and defensive sectors.