TOKYO -- Japan's benchmark Nikkei Stock Average plunged nearly 4% on Friday as a surge in U.S. Treasury yields spurred a share sell-off across Asia, particularly in the technology sector.
Japan's Nikkei Stock Average plunged over 1,200 points, or 3.9%, on Friday, closing below the 29,000 mark. It is the biggest percentage drop since April 2020 and wiped out nearly 50% of the index's gains for this month. The broader Topix index fell more than 3%, while the Mothers index, which includes many startups, declined 2% to a nearly two-month low.
Tech stocks took the brunt of the blow, with shares in SoftBank Group falling 4.5% and Sony sliding 3.9%, while semiconductor companies Screen Holdings and Advantest declined 6.5% and 7.5%, respectively. Stocks with high valuations also slumped -- online medical platform operator M3, which has a price to earnings ratio of over 160, fell 1.3%.
Japan's volatility index rose sharply on Friday to the highest level since October, indicating that investors are turning cautious. Meanwhile 10-year yields on government bonds rose to the highest level since early 2016, when the Bank of Japan introduced its negative interest rate policy.
In South Korea, the Kospi index was down close to 3%, with shares in Samsung Electronics falling around 3% and SK Hynix dropping nearly 5%. Australia's bench mark declined over 2%. Equity benchmarks in mainland China, Hong Kong and Taiwan also fell sharply.
The stock slide in Asia follows a tech sell-off on Wall Street that ended with the Dow Jones Industrial Average closing down 1.8% and the Nasdaq tumbling 3.5% on Thursday.
The sharp fall in global stocks was prompted by a rise in the 10-year U.S. Treasury bond yield, which climbed up to 1.61% at one point, the highest since last February, unnerving investors who fear that higher inflation will spur the Federal Reserve to raise interest rates.
Federal Reserve Chairman Jerome Powell has tried to reassure the market, saying earlier this week that interest rates will remain low for some time to spur the economy. But his words seem to have done little to sooth investor qualms, and the market now appears to be factoring in the possibility of a future rate hike.
Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management, said: "There is still a strong uncertainty as to whether U.S. yields will continue to rise, which is creating anxiety among investors. ... If yields keep climbing rapidly, it could lead to an overall sell-off that will affect not only tech stocks but various sectors."
Meanwhile an apparent shift in the Bank of Japan's buying behavior is also giving investors reason to be nervous.
Since the beginning of this year, the BOJ has reduced its purchase of exchange-traded funds and has refrained from buying even on days when the Topix index has fallen more than 0.5% in morning trade, a level previously seen as its trigger to act.
On Friday, the BOJ bought 50.1 billion yen ($472 million) worth of ETFs, its first purchase this month. However, the amount was significantly less than its average purchases during the end of last year, which was about 70 billion yen. Analysts believe the BOJ is curtailing its stock purchases ahead of the scheduled review of its policy tools in March. Now the biggest owner of Japanese equities, the BOJ has faced criticism that its massive ETF purchases are distorting the market.