The Japanese Nikkei index registered its most significant drop in three months on Monday, pressured by renewed concerns over technology stock valuations and escalating geopolitical tensions in the Middle East.
The Nikkei 225 index tumbled 3.85% to close at 64,024.60 points, marking its largest single-day decline since March 9. The broader Topix index fell 2.45% to settle at 3,852.38 points.
This sell-off followed a sharp downturn in U.S. technology shares late last week, fueled by a robust May jobs report that stoked fears the Federal Reserve may adopt a more hawkish policy stance. The Philadelphia Semiconductor Index recorded its worst daily performance since March 2020.
Oil prices surged on Monday after Israel's strikes over the weekend prompted a series of retaliatory missile launches from Iran. The renewed hostilities have injected significant uncertainty into global markets.
Nomura Securities equity strategist Maki Sawada noted, "In addition to the decline in tech shares, geopolitical risks also appear to be weighing on the market." She added that the yen's exchange rate holding around 160 to the U.S. dollar is raising market concerns about potential currency intervention by Japanese authorities.
The yen weakened to its lowest level since the Japanese government intervened in the market over a month ago. Meanwhile, soaring energy costs have heightened inflation worries, contributing to a decline in government bond prices.
Data released on Monday indicated that Japan's economic growth momentum weakened in the January-to-March quarter, influenced by the Middle East conflict.
Within the Nikkei 225 index, declining issues heavily outnumbered advancers, with 163 stocks falling and only 61 rising.
The index's worst performers were led by SUMCO Corp., which plunged 12.8%, followed by Murata Manufacturing Co., Ltd., down 10.1%, and Socionext Inc., which fell 10%.
Japan's first-quarter economic growth was revised slightly lower from the preliminary estimate but remains on a recovery path, sustaining hopes for an imminent interest rate hike. Revised government data showed real gross domestic product grew at an annualized rate of 1.8% for the January-March period, compared to an initial estimate of 2.1%.
The downward revision was primarily due to weaker-than-expected capital expenditure, a trend anticipated following recent Ministry of Finance data. Some economists suggest this weakness may persist due to uncertainties surrounding the Middle East conflict.
Corporate capital spending reversed to a 0.7% quarter-on-quarter decline, contrasting with the initial estimate of a 0.3% increase.
Norihiro Yamaguchi of Oxford Economics stated, "Rising energy prices and heightened uncertainty will constrain both consumption and investment activity."
The economist forecasts a further decline in household real income as supply shortages worsen inflation. He added, "Rising costs will also suppress corporate profits, thereby putting pressure on investment."
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