Japan's Nikkei falls on Iran risks but weaker yen limits losses
Japan's Nikkei experienced a decline due to escalating U.S.-Iran tensions.
Synopsis Japan's Nikkei experienced a decline due to escalating U.S.-Iran tensions, which drove up oil prices and heightened risk aversion. The surge in crude prices, impacting Japan's economy and corporate earnings, was partially offset by a weaker yen boosting exporter stocks. Chip stocks underperformed, while oil explorers saw gains amid market uncertainty. Japan's Nikkei share average fell on Monday as U.S. attacks on Iranian nuclear sites fueled risk aversion, while the accompanying jump in oil prices weighed on the outlook for Japan's economy and corporate earnings.
ADVERTISEMENT The Nikkei declined 0.13% to 38,354.09 as of the close, with 154 of its components declining, versus 69 that rose and two that ended flat. However, that was well off the lows from early in the session, when the benchmark index slid around 1%.
The broader Topix slipped 0.36%.
"Owing to the strong sense of uncertainty in the current situation, many investors are taking a wait-and-see stance," said Yutaka Miura, senior technical analyst at Mizuho Securities. Drivers of Nikkei direction, including oil and the exchange rate, "are likely to fluctuate widely in response to any developments in the Middle East". Japan, which imports almost all of its oil, is highly sensitive to crude prices that surged to six-month peaks on Monday as traders waited nervously to see Iran's response to the U.S.'s entry into the conflict. Japanese manufacturers are also vulnerable to energy price spikes.
ADVERTISEMENT At the same time, analysts pointed to the yen's decline to a nearly six-week low versus a broadly stronger U.S. dollar as providing support to shares in Japan's heavyweight exporters, whose overseas revenues gain in value when the yen weakens.
"The rise in the dollar-yen interest rate has been very clearly helpful for the Nikkei's performance," said Yunosuke Ikeda, chief macro strategist at Nomura Securities.
ADVERTISEMENT The safe-haven yen is weakening because "investors seem more focused this time on the impact of higher oil prices on Japan's trade balance," Ikeda said. Chip stocks underperformed, with Advantest and Tokyo Electron the biggest drags in index-point terms, falling 1.23% and 1.17%, respectively.
ADVERTISEMENT Oil explorers were among the best-performing stocks, with the Topix mining sub-index climbing 1.49% to sit at the top of the 33 industry sub-indexes.
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