Japanese stocks dropped after U.S. President Donald Trump’s threats of attacks on power plants around the Strait of Hormuz exacerbated market concerns over climbing oil prices and fueled risk-off sentiment.
The Nikkei 225 fell over 3.1% in early Monday trading while the broader Topix slumped as much as 2.7%. Tokyo’s market is catching up with global benchmarks after a public holiday on Friday.
Electronics and banks contributed most to declines on the Topix, while Nissan and IHI were among the Nikkei’s worst performers. Skyrocketing oil prices — Brent was trading around $112 per barrel as of 9:05 a.m. in Tokyo — are sapping risk appetite across sectors.
“The view that the Iran war will be prolonged is gaining traction in the market,” making macro-sensitive sectors like tech vulnerable to selloffs, said Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence.
If oil climbs to $130 a barrel, the likelihood of U.S. interest rate hikes would rise, which would be an extra headwind for Japanese stocks, Hirakawa added. However, many downside risks are already priced in, so Tokyo stocks may rebound later this week, he added.