Japan’s Nikkei share average edged lower on Tuesday as investors shifted away from heavyweight technology stocks toward other sectors, while a sharp rise in government bond yields dampened broader risk appetite.

The tech-heavy Nikkei was down 0.2% at 66,173.86 as of 0200 GMT, after moving between gains and losses in early trading. In contrast, the broader Topix index rose 0.5% to 4,178.62.

According to Reuters, Japanese and U.S. government bond yields climbed to fresh highs on Tuesday as uncertainty in the Middle East kept oil prices elevated. Higher energy prices have increased concerns about inflation and strengthened expectations that the Bank of Japan and U.S. Federal Reserve could maintain or pursue tighter monetary policy.

AI-related shares were among the biggest losers, with heavily weighted chipmaking equipment manufacturer Tokyo Electron falling 3.4% and chip-testing equipment maker Advantest declining 1.6%. Both stocks were among the biggest drags on the Nikkei.

Data-centre-related companies also came under pressure. Cable makers Furukawa Electric and Fujikura, which have benefited from strong demand linked to the data-centre boom, fell 4.9% and 3.9%, respectively. Silicon wafer maker Sumco declined 4.1%.

The market appeared to be undergoing a short-term sector rotation, with automobile stocks emerging as one of the beneficiaries. Toyota and Nissan each gained 3.1%.

Sector rotation supports broader market

Despite weakness in technology stocks, the broader market remained relatively firm. Tokyo Electric Power Company Holdings was the Nikkei’s biggest percentage gainer, rising 5.1%.

Market breadth also pointed to underlying strength, with 168 of the Nikkei’s 225 components advancing, compared with 54 decliners, while three stocks were unchanged.

The divergent performance between the Nikkei and Topix highlighted the impact of sector rotation, as investors moved away from highly valued technology and AI-linked shares and into areas that could benefit from the changing market environment. Reuters noted that the broader bullish trend in Japanese equities remained intact despite the near-term shift in leadership.

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