Japanese tech stocks dropped Tuesday after a sharp sell-off in the U.S. market, triggered by the emergence of China’s DeepSeek chatbot. DeepSeek’s R1 model, which rivals the capabilities of leading U.S. AI companies, has raised questions about the enormous investments made by U.S. tech giants.

The retreat came after the announcement of DeepSeek’s R1, which appears to deliver similar AI capabilities for a fraction of the cost U.S. companies typically spend. The U.S. tech sector was rocked by this development, with companies like Nvidia, a major AI player, seeing their shares plummet.

The downturn extended to Japan, where tech-related stocks took a hit for the second consecutive day, following Wall Street's rout. Major Japanese companies, including Advantest, Tokyo Electron, and Disco Corporation, saw significant losses.

In addition, the U.S. dollar strengthened amid reports of potential new tariffs on global goods, causing concern about a looming trade war. The dollar rose against major currencies, and investors were left uncertain about the economic outlook, especially with looming trade tensions and regulatory changes under President Trump.

Market attention is now focused on how the AI sector and global trade policies will evolve in the coming months.

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