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

TOKYO: Japan’s Nikkei share average slumped on Thursday, as global markets felt the pressure from oil breaching the $100-per-barrel mark with the Middle East conflict widening.

Iran on Wednesday said it had attacked 10 ships near the Strait of Hormuz after the US sank five Iranian oil tankers, in the biggest wave of attacks on shipping by both sides since the start of the six-month-old war.

Rising speculation for an accelerated pace of Bank of Japan policy tightening also weighed on the market, with the central bank widely expected to raise interest rates next week.

“For the Japanese stock market as a whole, the rise in crude oil prices and interest rates are acting as a drag,” said Wataru Akiyama, Nomura Securities strategist.

The Nikkei lost 0.8% to end the morning session at 64,597.46.

The broader Topix lost 0.3% to 4,032.89.

Higher oil prices pushed global bond yields higher on expectations that central banks would respond with tighter policy.

BOJ board member Kazuyuki Masu on Thursday flagged the risk that the bank may be forced to raise rates rapidly if it falls behind the curve on inflation, stoking expectations of more rapid tightening.

Investors are also likely to “adopt a cautious stance” ahead of closely watched US consumer price data on Friday, a Federal Reserve policy decision on Wednesday, and the BOJ policy decision, Nomura’s Akiyama said.

“Given that the outlook for solid earnings growth among Japanese companies — particularly those in the AI and semiconductor sectors — remains intact for the time being, it is entirely possible that we may see some buying on dips later on.

However, unless new catalysts emerge, the current situation of limited upside is likely to persist.“ Nintendo was among the Nikkei’s biggest losers on Thursday, down 5.8%.

Data centre cable makers Fujikura and Furukawa Electric dropped 5.7% and 4.8%, respectively, retracing part of their big gains from Wednesday.

However, oil and coal was among the best performers in the Tokyo Stock Exchange’s 33 industry groups, gaining 1.1%.

Securities firms and banking topped the list, gaining 2.1% and 1.9%, buoyed by higher interest rates.