Japanese equities sank amid indications of Democratic gains in Tuesday’s U.S. midterm elections, a scenario some strategists had said would weigh on artificial intelligence stocks.
The tech-heavy Nikkei 225 declined as much as 4.8%, with chip and AI-related shares from memory maker Kioxia Holdings to MLCC maker Taiyo Yuden slumping more than 13% and among the worst performers. The broader Topix index fell as much as 3.5%.
“Global equity markets have already begun pricing in the view that a Democratic advantage would create headwinds for AI-related stocks,” said Masahiro Yamaguchi, head of investment research at SMBC Trust Bank.
In Japan, where markets were closed yesterday, “there appears to be some delayed unwinding of AI-related positions following similar moves in overseas markets.”
Tokyo’s markets were shut for a holiday on Tuesday. Wednesday’s selloff sent the Nikkei 225 below its 200-day moving average for the first time since June 2025. The gauge is down almost 17% from its all-time high reached in June, making it one of the worst performers among major markets for the period.
Tech shares had already been hit hard before the early results of the U.S. midterm vote, amid mounting concerns over the sustainability of the AI-stock rally that had supported the bull market. Chip-related companies such as Kioxia and Screen Holdings are down more than 50% each since the end of June.
“It is the AI theme which is the main driver of markets today, with worries over the sector’s prospects continuing to build,” said Frederic Neumann, chief Asia economist at HSBC Holdings. “With the election results from the U.S. trickling in, investors in Asia are also reluctant to add to risk, waiting for a clearer picture on the direction of U.S. politics.”
Polls have closed across much of the U.S., with Democrats securing an early win in their effort to take back the Senate. Kalshi is pricing roughly a 99% probability of Democrats taking the House of Representatives and a similar chance of winning the Senate, pointing to a sweep of both chambers.
A Democratic sweep of both chambers of Congress would likely bring greater scrutiny of the AI industry and data-center buildout, strategists have said, with issues including AI safety, data-center development and power costs becoming increasingly politicized.
“A Democratic landslide looks likely to be bigger than expected beforehand, and investors are put off by the prospect of deeper domestic political conflict and turmoil that would add to uncertainty,” said Mamoru Shimode, a chief strategist at Resona Asset Management. A Democratic win would likely put some brakes on AI-related investment, he added.
Shares of Mitsui Chemicals slumped as much as 14% after Reuters reported the government-backed Japan Investment is in talks to sell chipmaking materials maker JSR to the company.
