Nikkei Plunges 4% as Geopolitical Tensions and Fed Outlook Rattle Markets

Japan's Nikkei 225 tumbled over 3,000 points in its sharpest single-day decline since March, erasing nearly $300 billion in market value. The selloff reflects escalating Middle East tensions after Iran's missile strikes on Israel, which sent crude prices soaring and reignited fears of energy supply disruptions.

Investors are recalibrating portfolios amid fading hopes for near-term Federal Reserve rate cuts. Stronger-than-expected US jobs data and persistent inflation have forced markets to price in prolonged higher rates. This macroeconomic shift is particularly punishing for Japan's export-heavy index.

The rout extends beyond geopolitics. Traders are questioning the sustainability of the AI investment boom that propelled earlier gains. "We're seeing capital rotation out of overextended tech positions," noted Saxo's Charu Chanana, as the Nikkei's tech components led declines. Parallel drops in South Korean markets suggest regional contagion.