Global Markets | Nikkei falls 5% as surge in oil prices fans economic slowdown fears

Japan's Nikkei average dropped more than 5% to a one-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 5.2% to 52,728.72, its lowest close since February 2, while the broader Topix slipped 3.8% to ‌3,575.84.

The Nikkei ⁠average futures ⁠fell as much as 7.8% during the session, 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 more than 25% on Monday to their highest levels since mid-2022 as some major producers cut supplies and fears of prolonged shipping disruptions gripped the market due to the expanding U.S.-Israeli war with Iran. 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 11.03% and 6.87%, respectively.

Bank shares fell, with Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group losing more than 3% each.

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.

All 33 industry sub-indices of the Tokyo Stock Exchange fell, with the nonferrous metals sector losing 8.38% to become the worst sector.