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Nikkei Falls on US Downgrade

Japan’s Nikkei 225 index dropped 247 points, or 0.9%, to 37,595 in early Monday trading, while the broader Topix slipped 0.3% to 2,733. The declines mirrored a sharp slide in U.S. futures following Moody’s surprise move to downgrade the U.S. credit rating from Aaa to Aa1 late Friday, rattling global investor sentiment.

Adding to the risk-off mood was a stern warning from U.S. Treasury Secretary Scott Bessent, who said countries that failed to negotiate “in good faith” on trade would face maximum tariffs. The hawkish stance revived fears of escalating protectionism, particularly in Asia’s export-driven economies.

At home, Japan’s economy added more pressure. Official data showed the country’s GDP shrank by 0.2% in the first quarter of 2025, a deeper contraction than the 0.1% decline economists had expected. It marked Japan’s first quarterly GDP drop in a year, weighed down by weak demand from China and the broader impact of U.S. trade restrictions.

Investors were also on edge ahead of China’s April data dump, due later today. Markets are bracing for key indicators like industrial output, retail sales, and the national unemployment rate — all crucial for assessing Asia’s demand outlook and future trade flows.

Early session laggards included Japan Post Holdings (-2.6%), Sompo Holdings (-1.3%), Tokyo Electron (-1.0%), and Sony Group (-0.8%) as market sentiment soured across most sectors.

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