Nikkei Falls 1.5% as Banks Tumble on Middle East Oil Surge
The Nikkei 225 declined 1.54% to close at ¥38,006 on Monday as escalating Middle East tensions sent oil prices soaring and hammered Japanese financial stocks, overshadowing gains in defensive sectors like pharmaceuticals and gaming.
The USD/JPY pair held steady near ¥162.49, providing modest support for export-oriented manufacturers but failing to offset broader risk-off sentiment that gripped Tokyo markets. The weak yen backdrop typically benefits Japanese exporters, though geopolitical concerns dominated trading flows throughout the session.
Oil Surge Weighs on Risk Assets
Brent crude’s surge above $90 per barrel, driven by expanded US-Iran strikes in the Middle East and reports of oil tanker explosions in the Strait of Hormuz, created a challenging backdrop for Japanese equities. The energy shock raised concerns about inflation pressures and economic growth, particularly impacting interest-sensitive financial stocks that had rallied earlier this year on expectations of eventual Bank of Japan policy normalization.
Mizuho Financial led the decline among major banks, tumbling 4.36% to ¥1,559.46, while Mitsubishi UFJ Financial and Sumitomo Mitsui Financial both shed over 3.5%. The financial sector’s weakness reflected investor concerns that higher oil prices could complicate the BOJ’s monetary policy path and potentially delay further rate hikes.
Defensive Plays Shine Amid Volatility
Despite the broader market selloff, defensive sectors provided refuge for investors. Takeda Pharmaceutical surged 2.51% to ¥2,709.7, benefiting from its stable dividend profile and healthcare sector resilience during geopolitical uncertainty. Nintendo gained 2.22% to ¥1,749.06, as gaming stocks attracted safe-haven flows amid the risk-off environment.
Daikin Industries also bucked the trend with a 1.22% gain to ¥2,746.04, as the air conditioning manufacturer’s strong fundamentals and exposure to global infrastructure spending supported investor confidence. These moves highlighted the rotation into quality names that has characterized recent NISA investment flows.
BOJ Policy Outlook Remains Uncertain
With the next Bank of Japan meeting scheduled for April 28, 2026, markets are closely watching for Governor Ueda’s tone amid ongoing US-China trade tensions and now Middle East instability. Current expectations favor a hold at the current rate, though any dovish signals could further pressure the yen while hawkish surprises might provide support.
Monday’s session underscored the delicate balance facing Japanese markets as geopolitical risks compete with domestic policy normalization expectations. While the weak yen continues supporting export competitiveness, rising oil prices and global uncertainty are testing investor appetite for risk assets, suggesting continued volatility ahead as markets navigate these crosscurrents.
This article is for informational purposes only and does not constitute investment advice. Please consult with a qualified financial advisor before making investment decisions.