Japanese stocks dropped Monday, with the Topix sliding into a technical correction, as U.S. President Donald Trump¡¯s threats of attacks around the Strait of Hormuz pressured risk appetite while oil prices continued to climb.
The Topix index fell 3.4% to 3486.44, marking a slump of over 10% from its record high reached on Feb. 27. The Nikkei 225 fell 3.5% to 51,515.49. Tokyo¡¯s market was catching up with global benchmarks after a public holiday on Friday.
Electronics and machinery contributed most to declines on the Topix, while chip-related firms like Renesas Electronics and Lasertec were among the Nikkei¡¯s worst performers. Skyrocketing oil prices ¡ª Brent crude was trading around $113 per barrel as of 3:30 p.m. in Tokyo ¡ª sapped risk appetite across sectors.
"Whatever happens now, what has become crystal clear is the outlook for near term inflation," said Amir Anvarzadeh, Japan equity strategist at Asymmetric Advisors, in a note. Trump's 48-hour ultimatum for Iran to reopen the Strait of Hormuz has "notched up the temperature," making escalation of the conflict look more likely, he added.
Anvarzadeh expects "overvalued" AI-related stocks, like cablemaker Fujikura, to be among the worst hit by inflation fears. Fujikura lost as much as 6.7% Monday.
Climbing bond yields are further amplifying caution in the equity market, said Kazuyuki Muramatsu, head of investment management at Nagomi Capital. Japanese government bonds slumped Monday amid inflation concerns, pushing yields toward multidecade highs.
"The market sees this as a 'bad' rise in yields," so it's a downside even for bank shares, which would usually get a tailwind from higher yields, Muramatsu said. The Topix banking index fell 3.7%.
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