Japan's Nikkei 225 plunged into a bear market on Friday, falling 5.96% in its third-biggest point drop on record, as the artificial-intelligence sell-off that hammered Wall Street swept across Asia — halting trading in South Korea and dragging Taiwan's benchmark into a bear market of its own.
The Nikkei closed down 3,643.13 points at 57,434.77, according to Kyodo News, after briefly losing more than 4,300 points during the session. The index ended about 21% below its June record peak — the conventional definition of a bear market — and below 60,000 for the first time since May. South Korea's Kospi fell more than 8% in early trade, triggering a 20-minute circuit breaker, before recovering to close down 6.02%.
The trigger, investors and analysts said, was the Democratic Party's sweeping victory in Tuesday's US midterm elections, which raised the prospect of tighter regulation of AI data centres — and a harder look at the enormous spending behind the AI boom. Thursday had already been Wall Street's worst day since April 2025. By Friday, the rout had crossed the Pacific.
Tokyo: the Nikkei's worst day since April 2025
The selling in Tokyo was broad and relentless. The Nikkei's 3,643-point fall was the third-largest single-day point drop in its history, according to Jiji Press, exceeding the previous third-biggest fall of 3,318.34 points set on 15 October this year. The index closed at its lowest level since mid-April, and the broader Topix finished 232.40 points, or 5.90%, lower at 3,707.99, with nearly all issues on the Prime Market under selling pressure, Kyodo reported.
The damage was concentrated in the AI-linked names that had powered the rally. SoftBank Group fell 10.83% and chipmaker Kioxia declined 8.72%, Jiji reported. Kioxia — which at one point had been the world's best-performing stock and Japan's most valuable company — has now plunged more than 70% from its record high, according to The Edge Singapore.
| Index | Friday's move | Close | Context |
|---|---|---|---|
| Nikkei 225 (Japan) | −5.96% (−3,643.13) | 57,434.77 | About 21% below its 22 June intraday peak of 72,831.73 — a bear market |
| Topix (Japan) | −5.90% (−232.40) | 3,707.99 | Biggest fall since April 2025; more than 10% below its August peak |
| Kospi (South Korea) | −6.02% at the close; −8.6% intraday | 5,059.65 | Trading halted for 20 minutes after an early plunge below 5,000 |
| Taiex (Taiwan) | About −4.5% | — | Now 20% below its peak — also in bear-market territory |
| Nasdaq (US, Thursday) | −5.52% | 24,315.00 | More than 10% below its record high — in correction territory |
Seoul: trading halted as the Kospi dives
South Korea bore the sharpest intraday shock. The benchmark Kospi plunged more than 8% in early trade on Friday, falling below the 5,000-point mark for the first time in nine months, Reuters reported. The Korea Exchange activated a 20-minute circuit breaker at 9:03 a.m. local time, temporarily halting all stock and derivatives trading.
Shares in chipmaker Samsung Electronics fell 10%, while peer SK Hynix lost 13%, Reuters reported. Among other heavyweights, battery maker LG Energy Solution slid 4%, while Hyundai Motor fell 6.9% and sister automaker Kia declined 4%. The index later recovered some ground, closing down 6.02% at 5,059.65.
"It is time for correction, but we feel that there may be some overreaction to the outcome of the midterm election. Hopefully we will stabilise very soon."
— Jun Kwang-woo, chairman of the Institute for Global Economics, Seoul, speaking to Reuters
Jun, a former chairman of South Korea's National Pension Service, said investors understood that the pace of building AI infrastructure, especially data centres, "may slow down a bit because of the number of concerns in many states including Texas".
Taiwan and the wider region
Taiwan's Taiex also entered a bear market, down 20% from its peak levels, The Edge Singapore reported, after falling about 4.5% on Friday. The broader MSCI Asia Pacific index fell approximately 3%, and investors sought the relative safety of government bonds: Japan's bond yields fell across the curve, with the five-year yield dropping 15 basis points to 2.04% at one point.
The regional sell-off followed a brutal session on Wall Street. On Thursday the Nasdaq Composite fell 5.52%, the S&P 500 lost 4.36% and the Dow dropped 3.44%, with all 11 S&P sectors ending lower. The Philadelphia Semiconductor Index fell roughly 12%, and the "Magnificent Seven" technology stocks shed more than $1 trillion in market value in a single day, with Nvidia alone losing over $440 billion.
Why the AI trade is unwinding
Two forces are colliding. The immediate trigger is political: investors fear that a Democratic-controlled Congress will slow US data-centre construction through tighter scrutiny, hitting the Japanese and Korean suppliers — chipmakers, memory producers, cable makers and equipment firms — that feed the AI build-out. But the deeper anxiety is about the trade itself: whether the enormous capital spending on AI infrastructure will generate returns quickly enough to justify valuations that had climbed to record highs.
Nvidia fell 9.3% on Thursday and Advanced Micro Devices dropped 17.3%, as investors questioned how quickly AI infrastructure projects could generate returns. Micron and Western Digital fell more than 17%, and SanDisk more than 22%. In Tokyo on Friday, Rohm tumbled about 20% in morning trading and Furukawa Electric lost more than 19%.
"Today's market has the appearance of 'panic selling.' We are at the 'brink' of whether the AI rally is heading toward its end or is merely a temporary pause."
— Jumpei Tanaka, head of investment strategy at Pictet Asset Management Japan, speaking to The Edge Singapore
Context matters: for all the damage, the Nikkei is still up 14% so far this year, and the Topix is on course for its fourth consecutive annual gain — its longest streak since 2015, according to The Edge Singapore. The Kospi, despite Friday's plunge, has still outperformed the S&P 500 this year. What changed on Friday was not the year's story, but the market's confidence in the AI trade that drove it.
Not everyone is convinced the rout marks the end of the rally. AMP chief economist Shane Oliver told Reuters it was too early to identify a bottom, but described the retreat as potentially "more of a correction than a bear market" if underlying economic conditions remained sound. "Since the US economy and corporate earnings are solid, I would also expect that investors will keep seeking other stocks while AI semiconductor stocks are unstable," Kazuki Sawamura, a strategist at Shinkin Asset Management, told The Edge Singapore.
What to watch next
The next test comes when US markets open later on Friday, with the Nasdaq already in correction territory and investors watching whether the selling spreads beyond technology — on Thursday, all 11 S&P sectors ended lower, and in Tokyo nearly every stock on the Prime Market fell. US jobs data due later on Friday will also be watched for any sign that the broader economy is weakening.
Beyond the day's trading, the market will be listening for signals from Washington about how a Democratic Congress intends to approach AI and data-centre policy — the question that turned a US sell-off into an Asian rout. And in Tokyo and Seoul, the question is whether dip-buyers return, or whether Friday's panic selling marks a genuine turn in the AI trade.
Frequently asked questions
What is a bear market?
A bear market is conventionally defined as a fall of 20% or more from a recent peak. The Nikkei closed on Friday about 21% below its 22 June intraday record of 72,831.73; Taiwan's Taiex also fell 20% from its peak.
Why did Asian markets fall so sharply?
The selling began on Wall Street on Thursday, when the Nasdaq fell 5.52% — its worst day since April 2025 — on fears that Democratic midterm victories could bring tighter regulation of AI data centres. Asian chip and AI suppliers, which depend on that spending, bore the brunt when their markets opened on Friday.
What is a circuit breaker?
A circuit breaker is an automatic trading halt triggered by a sharp fall, designed to pause trading and let orders and nerves settle. South Korea's exchange activated a 20-minute halt at 9:03 a.m. local time on Friday after the Kospi plunged more than 8%.
Is this the end of the AI rally?
That is the question markets are debating. Some strategists, including Pictet's Jumpei Tanaka, say the market is at a "brink" between the end of the rally and a temporary pause; others, including AMP's Shane Oliver, see a correction rather than a bear market while the US economy and corporate earnings remain solid. The Nikkei is still up 14% this year.
Key takeaways
- Japan's Nikkei 225 fell 5.96% to 57,434.77 on Friday — its third-largest point drop ever — entering a bear market more than 20% below its June peak.
- South Korea's Kospi plunged more than 8% intraday, triggering a 20-minute circuit breaker, before closing down 6.02%.
- Taiwan's Taiex also entered bear-market territory, down 20% from its peak.
- The trigger was Wall Street's worst day since April 2025, driven by fears that a Democratic Congress will slow AI data-centre construction — but the deeper worry is whether AI spending will pay off.
- Despite the rout, the Nikkei is still up 14% this year; strategists are split between a correction and the end of the AI rally.
The AI rally that carried Asian markets to record highs this year has hit its sharpest test. Whether Friday proves to be a buying opportunity or the start of a longer unwind will depend on what happens next in Washington — and on whether the spending behind the AI boom starts to show the returns investors were promised.
