Japanese stocks declined Wednesday as surging government bond yields, now at their highest since 2008, reinforced bets on further monetary tightening by the Bank of Japan.

The Nikkei 225 slipped 0.27%, or 105.79 points, to end at 39,164.61.

The Bank of Japan must raise rates further to curb excessive risk-taking and inflation, board member Hajime Takata said Wednesday, reinforcing expectations of more tightening.

Takata pointed to rising long-term inflation expectations and companies passing on labor costs, signaling conditions for rate hikes are in place. He noted that services prices are increasing more frequently, suggesting inflation has "taken root."

With inflation nearing the BOJ's 2% target alongside positive corporate behavior, Takata said monetary policy must shift gradually to avoid overheating financial activity.

In economic news, Japan's trade deficit widened to 2.759 trillion yen in January as import growth outpaced exports amid a weaker yen, government data showed Wednesday.

Exports rose 7.2%, led by shipments to ASEAN, the Americas, and the Middle East, while imports jumped 16.7%, driven by purchases from Asia and Western Europe.

Separately, machinery orders fell 2.9% in December but rose 5.3% in the fourth quarter, with core orders down 1.2% for the month but up 2.9% for the quarter.

On the corporate front, Komatsu (TYO:6301) will launch Komatsu North America Corp. on March 31 in Chicago to streamline regional sales and services, taking over functions from Komatsu America and Komatsu Mining, a Tokyo Stock Exchange filing showed Tuesday.

Kyorin Pharmaceutical (TYO:4569) secured an option to license CYR-064, a post-viral smell loss drug from US-based Cyrano Therapeutics.

The nasal treatment, in Phase 2 trials, boosts olfactory nerve activity, with results expected in late 2025. The deal includes an option fee, upfront payment, milestones, and royalties.

AnyMind Group (TYO:5027) became the exclusive e-distributor for Indian skincare brand NutriGlow in Vietnam. Products will be sold on Shopee, Lazada, and TikTok Shop, backed by AnyMind's e-commerce tech.