The Nikkei 225 index fell more than 4% on Friday, marking a severe reversal for Japanese equities as investors pulled back from the artificial intelligence trade.
The sell-off was concentrated in the technology sector, with semiconductor manufacturers bearing the brunt of the selling pressure.
The decline underscores growing caution among market participants regarding the sustainability of the sector's recent gains.
The sharp drop in Tokyo comes despite positive quarterly earnings reports from some major players, suggesting that near-term fundamentals are no longer sufficient to offset broader valuation concerns.
Investors appear to be reassessing the risk-reward profile of companies heavily exposed to the AI infrastructure build-out, particularly those with high capital expenditure requirements.
This move follows a broader pattern of volatility in the semiconductor space.