Geopolitical tensions surrounding Iran continue to ripple through global financial markets. Investment bank Goldman Sachs has just announced a reduction in its three-month target for Japan's TOPIX index from 4200 to 3900 points, citing heightened geopolitical concerns. Moody's Analytics also indicated that conflict in the Middle East raises the risk of reaccelerating inflation, potentially prompting the Bank of Japan to raise interest rates to 1% around mid-year.
During trading on Monday, Japanese equities experienced a sharp decline, with both the TOPIX and Nikkei 225 indices falling more than 1% at one point. By the time of reporting, the losses had moderated slightly.
Regarding the latest developments with Iran, U.S. President Donald Trump stated on the 15th that American and Israeli military objectives are largely aligned concerning operations against Iran. Later that evening, Trump added that the U.S. is discussing with other nations to jointly ensure navigation security in the Strait of Hormuz, but does not intend to thereby "declare an end" to military action against Iran.
Iranian Foreign Minister Mohammad Javad Zarif said on the 15th that Iran has never requested a ceasefire from the U.S., nor even asked for negotiations. Iran will continue to defend itself until President Trump recognizes this as an "unwinnable illegal war."
In the early hours of the 16th, the Iraqi Shiite militia group "Brigades of the Blood Guardians" claimed responsibility for an attack on the Victory Base Camp near Baghdad International Airport, stating it resulted in six U.S. military fatalities and four injuries. The U.S. has not yet responded to this claim.
Japanese stock markets witnessed significant volatility today, plunging sharply during the session. The Nikkei 225 fell nearly 700 points at one point, down over 1.30%, while the TOPIX dropped as much as 1.20%. At the latest update, the Nikkei 225 was down 0.43% and the TOPIX declined 0.56%. Among individual stocks, Tokyo Electric Power fell nearly 5%, Kawasaki Heavy Industries and Suzuki Motor dropped more than 2.5%, and Mitsubishi Electric declined almost 2%.
Citing intensified geopolitical worries, Goldman Sachs revised its three-month target for the TOPIX down to 3900 from 4200, and its six-month target to 4100 from 4400. Goldman Sachs Research now expects disruptions to crude oil exports transiting the Strait of Hormuz to last 21 days, compared to a previous estimate of 10 days. The research unit also raised its Brent crude oil price forecast, anticipating prices to reach $110 per barrel in March, $85 in April, before declining to $71 by the fourth quarter. Additionally, it lowered its projection for Japan's real GDP growth in 2026 from 0.8% to 0.5%.
The Bank of Japan is scheduled to announce its interest rate decision on Thursday. Moody's Analytics stated in a report that it expects the BOJ to hold rates steady this week, with a potential hike to around 1% near mid-year. The firm noted that Middle East conflict increases the risk of inflation reaccelerating, but the associated uncertainty will likely keep the BOJ on hold for now. A renewed weakening of the yen could prompt the bank to consider an earlier rate hike later this year, it added, though slowing wage growth and faltering real economic data make aggressive tightening beyond 1% difficult to justify.
Japanese Finance Minister Shunichi Suzuki said he is watching currency market movements with a high sense of urgency. During early Asian trading, the yen strengthened by up to 0.3% to 159.3 against the U.S. dollar, though the gain has since narrowed to 0.12%. Minister Suzuki stated that authorities are prepared to take bold action against forex volatility if necessary, adding that G7 members share concerns about extreme market fluctuations, including in exchange rates.
The recent surge in oil prices has also weighed on U.S. equities. J.P. Morgan Private Bank recently warned that if oil prices fail to retreat, the recent sell-off in the S&P 500 could intensify. Executives Kriti Gupta and senior market economist Joe Seydl cautioned that oil prices remaining above $90 per barrel for an extended period could trigger a 10-15% correction in the S&P 500, with spillover effects on international and emerging markets.
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