Soaring oil prices are dampening optimism about Japan's economic outlook and corporate profits, pushing the Japanese stock market's fear index to its highest level since the COVID-19 crisis in 2020. The one-year implied volatility for the Nikkei 225 index rose to over 30 points on Monday, reaching its highest level since March 2020. During that period, the pandemic ravaged nations, causing turmoil in global financial markets. This index measures the degree of price fluctuation investors anticipate over the next year and has now surpassed the recent peak of approximately 28 points, which was reached after the US tariff shock in April 2025 and the Bank of Japan's interest rate hike in September 2024. Strategists including Bruce Kirk from Goldman Sachs Japan have warned that the risk of a "significant correction" in Japanese stocks is increasing, given the relative calm since the volatility related to the so-called "Day of Liberation" last April. They noted that such high volatility might persist until the geopolitical situation in the region becomes clearer. From a historical perspective, it is highly unusual that Japanese stocks have not experienced a major correction since April 2025. Another closely watched indicator, the Nikkei Volatility Index, also surged to 66 points. This index, which reflects investor expectations for market volatility over the coming month, reached a level not seen since August 2024. During early trading on Monday, the Nikkei index plummeted 7.6%, falling to its lowest point in two months, with no signs of easing in the conflict involving Iran.
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