The Nikkei 225 Index dropped 1.4% to around 39,000, while the broader Topix Index lost 0.6% to 2,740 on Tuesday, extending losses from the previous session. Chip-related stocks linked to the US AI value chain led the decline, following concerns that Chinese startup DeepSeek could challenge the dominance of US AI leaders.

Local stocks also continued to be pressured by a hawkish stance from the Bank of Japan. On Friday, the central bank raised interest rates and revised its inflation forecasts higher, signaling the possibility of further rate hikes.

Investors are now focused on upcoming labor, inflation, and other economic data for further guidance. Notable losses were seen in chip and AI-related companies, including Disco (-8.4%), Advantest (-9.1%), Tokyo Electron (-5.2%), Hitachi (-6.2%), and SoftBank Group (-5.4%).

Source: Trading Economics