Japan's Nikkei Stock Average slumped for a second day, weighed down by chip-related stocks as anxiety over surging bond yields sapped risk appetite from the AI trade. The benchmark index declined as investors reassessed equity valuations amid rising borrowing costs.

Market participants pointed to the rapid ascent in Japanese government bond yields as the primary catalyst for the selloff. Higher yields increase the discount rate applied to future cash flows, particularly pressuring growth-oriented technology shares that have led the market's advance.

Semiconductor equipment makers and AI-exposed names bore the brunt of selling pressure. The sector's rich valuations leave it vulnerable to shifts in rate expectations, with traders reducing positions ahead of key central bank policy decisions.

Analysts suggest the correction may create selective buying opportunities for long-term investors, though near-term volatility is likely to persist until yield movements stabilize.