Nikkei Falls 1.7% as Iran Conflict Weighs on Risk Sentiment
The Nikkei 225 declined 1.70% to close at ¥38,602 on Friday as escalating US-Iran military tensions dampened investor appetite for risk assets across Tokyo’s main board.
Yen Weakness Provides Mixed Support for Exporters
The USD/JPY pair held near ¥162.33, keeping the yen at multi-decade lows that provided some cushion for Japan’s export-heavy manufacturers. Toyota Motor gained 1.61% to ¥28,402, while Honda Motor advanced 3.16% to ¥4,546 as the weak yen enhanced overseas earnings prospects. Sony Group surged 3.28% to ¥3,380, benefiting from both currency tailwinds and continued strength in its entertainment and semiconductor divisions.
However, the yen’s persistent weakness against the dollar continues to raise concerns about imported inflation, particularly as oil prices climbed on Middle East supply disruption fears. This dynamic creates a challenging backdrop for the Bank of Japan as it weighs future policy adjustments.
Geopolitical Tensions Drive Sector Rotation
The sixth consecutive night of US strikes on Iran sent shockwaves through global markets, with investors fleeing technology and financial stocks in favor of defensive plays. SoftBank Group plummeted 6.18% to ¥2,806 as its tech-heavy portfolio faced renewed pressure from risk-off sentiment. The technology conglomerate’s exposure to volatile growth stocks made it particularly vulnerable to the geopolitical uncertainty.
Japan’s major financial institutions also suffered significant losses, with Mizuho Financial down 3.19%, Mitsubishi UFJ Financial declining 2.81%, and Sumitomo Mitsui Financial falling 2.45%. Rising oil prices and inflation concerns weighed on bank valuations as investors questioned the sustainability of current interest rate differentials.
Defensive Sectors Find Favor Amid Uncertainty
Pharmaceutical giant Takeda bucked the broader market decline, gaining 1.70% to ¥2,643 as investors sought refuge in healthcare stocks. Daikin Industries led the gainers with a 3.50% surge to ¥2,713, supported by strong demand for its air conditioning systems and industrial equipment across Southeast Asian markets.
The defensive rotation highlighted investor concerns about prolonged Middle East instability and its potential impact on global supply chains. With Qatar reporting a thwarted Iranian missile attack and threats of Red Sea shipping disruptions, market participants are pricing in extended volatility across commodity and transportation sectors.
BOJ Policy Outlook Remains in Focus
Looking ahead to the Bank of Japan’s next policy meeting on April 28, 2026, market expectations remain centered on a rate hold amid the current geopolitical backdrop. Governor Ueda’s commentary will be closely watched for signals about the central bank’s tolerance for yen weakness against rising imported inflation pressures. Any dovish signals could further pressure the yen, while unexpected hawkish tones might provide currency support but risk dampening export competitiveness.
Friday’s session underscored the delicate balance facing Japanese equities between currency-driven export benefits and broader risk sentiment. As NISA investors continue building long-term positions in domestic blue chips, the interplay between geopolitical stability and monetary policy will likely remain key drivers for Tokyo markets in the sessions ahead.
This article is for informational purposes only and does not constitute investment advice. Past performance does not guarantee future results.