(MENAFN) Japanese equities suffered a dramatic selloff Monday as currency appreciation and surging borrowing costs triggered investor panic over potential monetary policy tightening by the nation's central bank.

The benchmark Nikkei 225 index collapsed 950.63 points—a 1.89 percent decline—closing at 49,303.28. Meanwhile, the Topix fell 40.11 points, or 1.19 percent, settling at 3,338.33.

Japan's 10-year government bond yield surged to 1.87 percent, marking its steepest climb since June 2008. The spike followed remarks from Bank of Japan (BOJ) Governor Kazuo Ueda, who indicated policymakers "will weigh the pros and cons of raising its policy rate when its board meets later this month."

Currency markets reacted swiftly to Ueda's comments, with the dollar tumbling into the lower 155 yen territory in Tokyo trading as traders priced in a higher probability of imminent rate increases.

Trading began on an optimistic note following Wall Street's late-week rally, buoyed by expectations the U.S. Federal Reserve "will cut its benchmark interest rate next week to bolster the world's largest economy."

Yet those early gains evaporated rapidly as profit-taking swept through markets. Investors cashed out after the Nikkei had surged more than 1,600 points across the previous four sessions.

At its session low, the Nikkei tumbled over 2 percent—shedding more than 1,000 points—as the strengthening yen hammered export-oriented companies while escalating long-term yields heightened fears about elevated financing costs, according to market analysts.

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