The Nikkei 225 Index dropped 3.7% to around 62,500, while the broader Topix Index declined 2.3% to 3,973 on Tuesday, with the Nikkei falling to a two-month low as semiconductor and other technology stocks faced renewed selling pressure.
The losses followed a sharp selloff in US chipmakers overnight amid concerns that circular AI financing arrangements could unravel if hyperscalers scale back capital spending.
Major decliners included Kioxia Holdings (-2.6%), SoftBank Group (-4%), Advantest (-8.4%), Taiyo Yuden (-7.3%), and Tokyo Electron (-9.7%).
Heavyweight banking stocks also weakened, with Mitsubishi UFJ (-3.2%), Sumitomo Mitsui (-3%), and Mizuho Financial (-3.9%) posting notable losses.
Meanwhile, oil prices extended their decline after President Donald Trump said the US had resumed negotiations with Iran aimed at ending the Middle East conflict.