Japan’s Nikkei gave up its four-session winning streak, retreating by 1.83% to close at 39,180.3 points.
This pullback followed a sharp rally that had taken the index above 40,000, its highest level in three months.
Chip-related stocks led the declines, mirroring the performance of US semiconductor peers amid growing concerns over future demand.
See: Nikkei 225 trends downward from 40,286.15, with a slight recovery, as moving averages and MACD suggest short-term bearish momentum on the VT Markets app.
Tokyo Electron plunged 9.19%, tracking a 5.3% overnight slump in the SOX index, after ASML cut its sales forecast for the year, citing weak non-AI chip demand.
A report suggesting the Biden administration might impose new restrictions on AI chip exports to some countries added further pressure to sentiment.
The technology-focused Nasdaq also closed lower by 1% overnight, with weakness in semiconductor stocks dragging down the broader market.
In Japan, SoftBank Group slipped 3.97%, and Lasertec tumbled by 13.44%, further weighing on the Nikkei.
The yen traded at around 149 per US dollar, strengthening from levels near 160 in July, when the Nikkei last peaked.
Analysts highlighted that the stronger yen continues to act as a headwind for Japanese equities, particularly exporters.
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The broader Topix index fell 1.21% to 2,690.66, as losses in growth-focused stocks weighed heavily. Growth stocks on the Topix index dropped 1.75%, while value stocks fell 0.67%.
However, the insurance sector bucked the trend, climbing 0.35%. MS&AD Insurance gained 1.26%, while Tokio Marine Holdings added 0.05%. NTT provided the strongest support for the Topix, rising 0.82%.
With sentiment cooling after the recent rally, traders are cautious about further downside risks, especially if the US market continues to see pressure on semiconductor stocks.
A stabilisation in the yen or signs of improvement in global chip demand could provide relief, though near-term volatility remains likely.
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