Japan's Nikkei sinks amid rise in oil as Iran war escalates

Japan's Nikkei share average experienced a significant decline on Thursday, as global markets grappled with the impact of oil prices surpassing the US$100 per barrel mark and the escalating conflict in the Middle East. Iran announced on Wednesday that it had targeted 10 ships near the Strait of Hormuz following the US sinking of five Iranian oil tankers, marking the most extensive wave of attacks on shipping by both sides since the six-month-old war began.

Speculation surrounding an accelerated pace of Bank of Japan policy tightening also contributed to the market's downward trend, with the central bank expected to raise interest rates next week. Wataru Akiyama, a Nomura Securities strategist, noted that the rise in crude oil prices and interest rates were acting as a drag on the Japanese stock market.

The Nikkei closed the morning session at 64,597.46, down 0.8 per cent, while the broader Topix fell 0.3 per cent to 4,032.89. Rising oil prices pushed global bond yields higher, leading to expectations of more rapid tightening from the Bank of Japan. Investors are also anticipated to adopt a cautious stance ahead of key US economic data and policy decisions.

Despite the current limited upside, there remains a possibility of buying on dips, particularly in sectors such as AI and semiconductors. Notably, Nintendo suffered the largest loss among Nikkei companies on Thursday, down 5.8 per cent. Data center cable makers Fujikura and Furukawa Electric also experienced declines of 5.7 per cent and 4.8 per cent, respectively.

However, oil and coal emerged as the best-performing sectors in the Tokyo Stock Exchange's 33 industry groups, rising 1.1 per cent. Banking and securities firms led the gains, with increases of 2.1 per cent and 1.9 per cent, respectively, driven by higher interest rates.