Japan's Nikkei index closed lower for a third straight session on Monday. Market concerns intensified that rising energy prices and a weaker yen could inflict long-term damage on the economy, driven by the Middle East crisis. The benchmark Nikkei index edged down 0.1% to close at 53,751.15, after falling as much as 1.3% during the trading day. The broader Topix index declined 0.5% to 3,610.73.
Since the US and Israel launched airstrikes on Iran over two weeks ago, the Nikkei index has lost nearly 9%. A brief recovery occurred after US President Donald Trump stated he was urging other nations to help secure shipping routes.
Japanese Finance Minister Tsutomu Sato stated on Monday that the government is prepared to take decisive action against excessive volatility in the currency market and other financial markets, as the yen approached the psychological threshold of 160 against the US dollar. Speaking in parliament, Sato said, "G7 finance ministers share concerns about extreme market volatility, including in the foreign exchange market." He added, "We are maintaining high vigilance and are ready to take decisive measures."
Maki Sawada, an equity strategist at Nomura Securities, noted that markets appear increasingly worried about stagflation, a scenario where the economy faces both rising inflation and slowing growth simultaneously. "The market has priced in concerns about an economic slowdown triggered by rising oil prices," Sawada said. "Today's session did not see a broad sell-off; these domestic demand-oriented sectors showed resilience, providing support to the Japanese stock market."
Within the Nikkei index, 65 stocks advanced while 154 declined. The top gainer was Ibiden, rising 3.8%, followed by Screen Holdings, which increased by 3.7%. The largest decliner was utility company Tokyo Electric Power, down 4.8%, followed by Isuzu Motors, which fell 4.4%.
Moody's Analytics stated in a report that it expects the Bank of Japan to keep interest rates unchanged this week, with a potential rate hike to around 1% occurring around mid-year. The agency indicated that the Middle East conflict increases the risk of inflation re-accelerating, but the uncertainty stemming from the conflict will likely keep the central bank on hold. It noted that a renewed weakening of the yen might prompt the Bank of Japan to consider an earlier rate hike later this year. However, the agency added that slowing wage growth and faltering real economic data make it difficult to support an aggressive tightening plan that would push rates significantly above 1%. The Bank of Japan is scheduled to announce its interest rate decision on Thursday.
Comments