Nikkei Tumbles 3% as Fed Rate Fears and Oil Surge Rattle Markets

Japan's Nikkei 225 index dropped 3.11% to 63,243.98 in early trading on Friday, while the broader Topix declined 1.95% to 3,975.67, as renewed concerns over US interest rate hikes and surging oil prices fuelled inflation worries.

The sell-off followed a retreat in US equities overnight, where higher Treasury yields and August producer-price data reinforced expectations of a Federal Reserve rate hike. Fed Chair Kevin Warsh has signalled a shift away from forward guidance, keeping investors attentive to upcoming US inflation figures. Geopolitical tensions also persisted, with the US-Iran confrontation continuing to disrupt energy markets.

"All three major indices in the U.S. fell in response to rising crude oil prices and higher U.S. long-term interest rates, which is likely to weigh on Japanese equities," said Takuma Ikemoto, market analyst at Tokai Tokyo Intelligence Lab. "With Fed Chair Warsh signalling a focus on curbing inflation, a wait-and-see stance is likely to strengthen in the Japanese stock market," he added.

Market breadth was overwhelmingly negative, with 23 advancers on the Nikkei 225 against 201 decliners and one unchanged. The biggest losers were Resonac Holdings, down 8.12%, followed by Kioxia Holdings, down 7.11%, and Sumco, down 6.77%. The largest percentage gainers were Inpex, up 2.04%, followed by Konami Group, up 1.89%, and Bandai Namco Holdings, up 1.76%.