The Nikkei 225 index fell by 7% to 33,370, and the broader Topix index lost 6.5% to 2,370 on Monday. Both benchmarks hit seven-month lows as investors continue to grapple with the prospect of rising interest rates in Japan. Local stocks were also sold off amid a sharp rise in the yen, which worsened the earnings outlook for Japan's export-oriented industries.

Last week, the Bank of Japan raised its benchmark rate to 0.25% and indicated its readiness to continue raising rates, with markets betting on two more hikes in this fiscal year, ending in March 2025. Japanese stocks also followed losses on Wall Street, driven by U.S. recession fears and disappointing results from major tech companies. Financial stocks led the sell-off, with Mitsubishi UFJ falling 12.1%, Sumitomo Mitsui down 11.2%, and Tokio Marine Holdings dropping 10.2%. Heavyweights in the technology, automotive, and other sectors also faced significant declines.