Japan’s Nikkei share average fell 2.5% on Tuesday, August 18, closing at 67,460.73. Concerns over rising oil prices and inflation resurfaced amid a stalemate in the Middle East conflict. This decline ended a five-day winning streak, during which the index gained 5.5%. The broader Topix index also dropped, losing 1.1% to close at 4,140.22.
Key Details
The expiration of a temporary ceasefire between the U.S. and Iran contributed to the market's downturn. Washington ruled out extending the ceasefire. Meanwhile, Tehran announced a shift to a “fully offensive” military posture. Crude oil prices increased as shipping traffic through the critical Strait of Hormuz was disrupted. This situation worsened inflation worries. Bond yields surged to multi-decade highs, including in Japan, as investors reacted to the potential for prolonged inflation. Wataru Akiyama, an equities strategist at Nomura Securities, noted, "Rising interest rates tend to highlight the relative overvaluation of share prices."
Background
Growth stocks faced significant selling pressure, especially in the electrical appliance sector, which fell 3.7%. Notable declines included chip-making tool manufacturer Tokyo Electron, which dropped 6.2%. Chip-testing equipment maker Advantest also fell, down 5.1%. In contrast, shipping stocks gained traction, benefiting from expectations of higher freight rates. The marine transport sector rose 3.6%.
Related coverage: Oil Prices Surge as U.S. Stocks Slip Ahead of Inflation Data.
The decline in the Nikkei is likely to affect investor sentiment towards equities. This is especially true in sectors sensitive to inflation and interest rates. Rising oil prices could lead to increased costs for consumers and businesses. This may impact sectors such as transportation and manufacturing. Watch for further developments in the U.S.-Iran situation and any related economic data that could influence market trends.
Based on reporting by: businesstimes.com.sg