Japan's Nikkei 225 fell 3.6% in the Wednesday morning session as Tokyo reopened after a public holiday and caught up with a steep drop in U.S. semiconductor shares. The index stood at 60,835.36 at the midday break, down 2,246.50 points from Monday's close of 63,081.86, according to Yahoo Finance data.

The selling was led by chip and artificial intelligence names that had driven much of the index's gains this year. For investors in Asia, the Nikkei has become one of the region's most direct bets on AI spending, and it is now giving back gains faster than most of its neighbors. Wednesday's midday level was about 8.9% below the Sept. 30 close of 66,753.72.

Holiday gap leaves Tokyo playing catch-up

Tokyo markets were shut on Tuesday for Culture Day. Before they reopened, the Philadelphia Semiconductor Index fell 7.2% after disappointing results from U.S. technology companies, AFP reported, citing Bloomberg. AFP put the Nikkei down 2.97% at 61,205.38 as of 10:40 a.m., and said the decline came as investors awaited results of the U.S. midterm elections held on Tuesday.

The losses deepened before the break. By 11:30 a.m., Kioxia Holdings had fallen 11.5% to 10,035 yen, Yahoo Finance data showed. SoftBank Group dropped 9% to 4,012 yen, Advantest fell 7.8% to 32,980 yen and Tokyo Electron slid 6.3% to 9,377 yen. Lasertec was down 5.6%.

The damage reached beyond technology. Toyota Motor lost 2% and Mitsubishi UFJ Financial Group fell 3.1%. An exchange-traded fund that tracks the broader Topix was down 2.4%, a smaller decline than the Nikkei's, because the price-weighted Nikkei gives heavy influence to a handful of expensive chip and tech shares. The yen was little changed at about 157.6 per dollar.

Kioxia's slide extends after weak guidance

Wednesday's fall came on top of a heavy day for Kioxia on Monday. The memory chipmaker's shares dropped 15.8% to 11,345 yen on Monday, while the Nikkei slipped 0.33% to close at 63,081.86, Yahoo Finance data show. Across the two sessions, Kioxia has lost roughly 25% of its value.

Concern over how long AI capital spending can keep rising has hung over Tokyo since mid-October. Nomura Securities equities strategist Wataru Akiyama said on Oct. 22 that investors were focused on 2027 and whether that spending will continue, according to Reuters. That same morning, Tokyo Electron fell 4.1% and Screen Holdings lost 6%. Kazuyoshi Saito of Iwai Cosmo Securities told Reuters that Chinese customers had rushed to buy equipment ahead of expected tighter rules, and that the payback from that buying might not be fully priced in.

The Nikkei went on to lose 5.2% in October, as Capital Times reported last week.

What investors are watching

The concentration that lifted the index is now working against it. Because the Nikkei is price-weighted, double-digit moves in a few chip stocks can swing the benchmark by hundreds of points. Advantest only last week raised its full-year profit forecast after a record quarter, which shows how quickly sentiment toward the group has turned.

Investors are watching U.S. chip shares and upcoming Japanese company results for signs of whether AI-related demand will hold up into 2027. Wednesday's afternoon session reopens at 12:30 p.m. Tokyo time, with the 60,000 level a little more than 1% below the midday print.