The Nikkei stock index briefly sank over 5 percent Monday morning, as crude oil futures surged after U.S. President Donald Trump warned that power plants would be attacked if Iran does not lift the closure of the Strait of Hormuz.
The 225-issue Nikkei Stock Average fell 1,790.30 points, or 3.35 percent, from Thursday to 51,582.23. The broader Topix index was down 111.59 points, or 3.09 percent, at 3,497.81.
Japanese markets were closed Friday for a public holiday.
The U.S. dollar strengthened to the mid-159 yen range in Tokyo, as a flight to safety dominated amid concern that the Middle East crisis could be prolonged.
At noon, the dollar fetched 159.52-54 yen compared with 159.18-28 yen in New York at 5 p.m. Friday.
The euro was quoted at $1.1547-1547 and 184.21-22 yen against $1.1565-1575 and 184.19-29 yen in New York late Friday afternoon.
Trump gave Iran 48 hours to open the strait in a social media post at 8:44 a.m. on Sunday, Japan Standard Time, while Iran said the waterway will be shut completely if its power plants are attacked.
The benchmark West Texas Intermediate crude oil futures contract briefly topped $100 per barrel amid the crisis.
Concern about disruptions to logistics and an economic slowdown driven by high energy costs pressured financial markets, dealers said, while heavyweight technology shares were the main decliners.
“As for the current situation in the Middle East, no progress toward a solution has been seen,” said Maki Sawada, strategist in the Investment Content Department of Nomura Securities Co.