Japanese stocks fell sharply Monday as investors reassessed the outlook for monetary policy in the United States and Japan. The Nikkei 225 dropped 1.97% to 65,096.63 in early Tokyo trading, while the broader Topix fell 0.84% to 4,111.71. Financial shares outperformed on expectations of higher domestic borrowing costs, while exporters, technology companies and growth stocks came under pressure after Federal Reserve Chair Kevin Warsh said the U.S. central bank would "have work to do" unless policymakers gained confidence that inflation was returning sustainably to its 2% target. Japanese government bond (JGB) yields rose, with the two-year yield reaching 1.730%, its highest level since April 1995, as markets increased bets that the Bank of Japan (BOJ, Japan's central bank) will raise rates at its meeting next month. Tokyo consumer price index (CPI) data showing faster inflation in August reinforced those expectations. The Ministry of Finance plans to sell 10-year bonds Tuesday and 30-year bonds Thursday, with demand seen as a test of investor appetite at elevated yields. Analysts said financial shares could support the Topix, while a narrower U.S.-Japan interest-rate gap could strengthen the yen and weigh on Japanese exporters. Auction results are expected to offer further clues about positioning ahead of the BOJ's September policy decision.