Japanese stocks declined after concerns over the escalating Iran war drove worries about the economic impact of steeper oil prices as the conflict enters its fifth week. The Nikkei 225 Stock Average fell as much as 5.3% and the Topix index was down 4.8% at one point in Tokyo. Electronics and banks weighed most heavily on the broader Topix, while SoftBank Group Corp and Ibiden Co. were among the Nikkei's worst performers.
Monday's slide comes after the Houthis joined the Iran war and additional US troops arrived in the Middle East. The developments pushed oil prices higher, with Brent trading close to $116 per barrel.
“The Middle East conflict and its economic fallout is the biggest cloud hanging over Japanese equities,” said Nikos Tzabouras, a senior strategist at multi-asset trading platform Tradu.
Japan's heavy reliance on the Middle East for oil imports makes it “uniquely vulnerable,” he said. “The risk from high gas prices is real, and could hit Japan's manufacturing base which is still a cornerstone of the economy.”
Automaker Toyota Motor Corp. contributed most to the Topix's decline in morning trade, dropping around 7%. Hitachi Ltd., was also weak.
The equity selloff comes alongside a renewed slide in the yen, which temporarily fell below 160 to the dollar and is trading near its weakest level since July 2024.
“The weak yen can do more harm than good — even exporters have to import things too,” said Tzabouras. “The yen's weakening is tied to concerns over Japan's fiscal position, and I wouldn't expect any meaningful rebound soon.”
The Nikkei hit its lowest level since Dec. 30 at one point on Monday morning, and the benchmark has given up almost all of its year-to-date gains.
Japan's stocks are likely to fall further as investors now expect a drawn-out war in the Middle East, said Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Laboratory. The US has indicated the conflict will continue for several weeks, and hopes for peace talks are not high, he said.
Monday is also the ex-dividend date for many companies with fiscal years ending in March and September, which is likely to put extra pressure on the benchmarks as investors lock in payouts. Ex-dividend stocks may push down the Topix by approximately 35 points and the Nikkei 225 by around 357 yen, according to Bloomberg-compiled data.
ALSO READ: Brent Crude Surges To $116 As Middle East Conflict Worsens With Houthi Attacks On Israel
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