Nikkei drops 7% as surge in oil prices fans economic slowdown fears

Japan's Nikkei average fell 7% to a two-month low on Monday amid a broad selloff, as a surge in oil prices fanned fears of inflation and an economic slowdown. The Nikkei fell 6.98% to 51,740.46, its lowest level since January 9 by the midday break, while the broader Topix slipped ‌5.6% to ⁠3,508.72.

The Nikkei ⁠average futures fell as much as 7.8%, close to a level that could have triggered the circuit breaker to suspend trading. Just two weeks ago, both the Nikkei and Topix hit record highs on expectations of profit growth, backed by Prime Minister Sanae Takaichi's stimulus and an artificial intelligence-driven rally.

"The market started taking the impact of the Middle East conflict more seriously. Until last week, there ⁠was some optimism ‌and investors picked up stocks on dips, but now there is a question about the market upside," said Hitoshi Asaoka, chief strategist at ⁠Asset Management One.


"The Nikkei's decline at today's pace is justifiable if the Middle East conflict drags on." Oil prices surged about 20% in early trade on Monday, hitting their highest since July 2022, as the expanding U.S.-Israeli war with Iran fuelled fears of tighter supply and prolonged disruptions to shipments through the Strait of Hormuz. Meanwhile, Iran on Monday named Mojtaba Khamenei to succeed his father, Ali Khamenei, as supreme leader, signalling ‌that hardliners remain firmly in charge, as the week-old U.S.-Israeli war with Iran pushed oil above $100 a barrel.

Chip-related shares tumbled, with Advantest and Tokyo Electron lost 12.84% and ⁠8.83%, respectively.

Fibre optic cable maker Fujikura fell 13.27%. Technology investor SoftBank Group lost 11.21%.

Bank shares fell, with Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group losing 7.29% and 6.6%, respectively.

The market is worried about the negative effect of the oil price surge on corporate profits, said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities.

Oil explorer Inpex rose 1.88%.

The Topix's mining index rose 0.95% and was the only rising index among the Tokyo Stock Exchange's 33 industry sub-indices.