Nikkei Suffers Worst Weekly Loss in Six Years Amid AI Fears
Political shifts in the US trigger a global sell-off in technology and AI-related stocks.
1Historic Market Decline
The Japanese Nikkei index recorded its worst weekly performance in over six years, plummeting 9.3 percent. This decline mirrors the sharp drop seen during the peak of the COVID-19 pandemic in March 2020. The index closed down 6 percent on Friday, with 222 out of 225 companies experiencing significant share price losses.
2US Political Impact
Investor anxiety surged following the Democratic Party's control of the US Congress. Market participants fear that new legislative priorities will restrict AI infrastructure expansion and impose stricter regulations on the tech sector. This political shift has directly impacted global sentiment, leading to a massive sell-off in chipmakers and AI-related companies.
3Tech Sector Sell-off
Major technology stocks faced intense pressure, with SoftBank shares falling 10.8 percent and Advantest dropping 5 percent. In the United States, the S&P 500 and Nasdaq Composite indices suffered their largest daily declines since April 2025. Approximately 3 trillion dollars in market value evaporated from the S&P 500 companies during this period.
4Flight to Safety
As equity markets tumbled, investors flocked to Japanese government bonds, viewing them as a traditional safe haven. The yield on the ten-year benchmark bond fell 14.5 basis points to 2.61 percent. This flight to safety reflects a broader reassessment of risk as market volatility reaches its highest level since March.
5Interest Rate Uncertainty
Market turbulence has complicated the Bank of Japan's monetary policy path. Traders now assign a 58 percent probability that the central bank will keep interest rates unchanged in December. Experts suggest that continued financial instability makes it difficult for the bank to proceed with planned rate hikes, favoring a wait-and-see approach.
6Regional Market Contagion
The sell-off extended rapidly across Asia, with South Korean and Taiwanese markets falling over 8 percent before authorities intervened. Taiwan's stock market recorded its largest weekly decline since 1991, dropping 12.2 percent. Financial regulators in both nations held emergency discussions with bank executives to support market stability and contain panic.
7AI Profitability Concerns
Beyond political fears, investors are questioning the long-term profitability of AI investments. Analysts note that high infrastructure costs and potential delays in data center construction are creating skepticism. The market is shifting from a broad rally in AI stocks to a more selective approach, focusing on individual company performance and financial viability.
8Infrastructure and Regulation
New legislative efforts, such as those proposed in Texas, aim to protect local communities from the impacts of data centers. These regulatory headwinds add to the existing challenges faced by smaller tech firms, which already struggle with high interest rates. Investors are now pricing in these increased operational costs and regulatory burdens.
9Margin Call Pressures
The rapid decline triggered widespread margin calls for both individual investors and hedge funds. Financial firms reported a surge in client complaints and requests for liquidity as portfolios faced significant losses. This emotional reaction highlights the vulnerability of investors who had previously taken long positions on AI-driven market growth expectations.
10Corporate Debt Risks
Credit risk indicators for major investors like SoftBank have deteriorated, with insurance costs against default reaching a four-year high. Similarly, CoreWeave saw its shares drop 10 percent, reflecting broader concerns about the debt-fueled expansion of AI infrastructure. These metrics underscore the growing fragility of companies heavily reliant on external financing.
11Future Market Outlook
Market strategists warn that a quick recovery is unlikely given the scale of the damage. While some suggest the market may reach short-term oversold levels, the fundamental concerns regarding AI spending and regulatory oversight remain unresolved. Investors are expected to remain cautious as they re-evaluate the sustainability of the AI boom.
12Economic Policy Implications
The current market crisis forces a re-evaluation of global economic growth drivers. With the US market acting as the primary engine for AI investment, its volatility threatens to undermine global confidence. Policymakers must now balance the need for technological innovation with the growing public and political demand for stricter regulatory oversight.
Original article: Asharq Al-Awsat — Nikkei Suffers Worst Weekly Loss in Six Years Amid AI Fears