Japan Stocks, Yen Drop Amid Middle East Tensions

Tokyo stocks and the yen tumbled on Monday as investors grappled with escalating geopolitical tensions in the Middle East following reported Israeli and U.S. military actions in Iran.

The benchmark Nikkei share average closed down 1.3%, marking its largest decline in five weeks, settling at 58,057.24 points. The broader Topix index also experienced a decline of 1%. The Japanese yen weakened, falling 0.6% to 156.95 against the U.S. dollar. Conversely, Japanese government bond yields saw a decrease, with the 10-year yield dropping 5 basis points to 2.06%.

Kazunori Tatebe, chief strategist at Daiwa Asset Management, noted that a potential 10% surge in crude oil prices could erode the net profits of companies listed on the Topix index by 1% to 2%. "The market is unsure whether the conflict will be prolonged or end soon," Tatebe stated, adding, "If it escalates, higher crude oil prices would negatively impact Japanese corporate earnings."

Airlines were among the hardest hit sectors, while bank and brokerage shares also suffered following the bankruptcy declaration of British mortgage financing firm Market Financial Solutions. ANA Holdings, a major Japanese airline, saw its stock price plummet by 5.4%, while Nomura Holdings, a leading Japanese brokerage, experienced a 6.8% decline.

The Nikkei's decline was further exacerbated by major chip-related stocks, with Advantest falling 3.9% and Tokyo Electron dropping 1.1%.

Conversely, energy exploration companies experienced a surge, with their index climbing 6.3%. Inpex Corp. rose 6.1%, becoming one of the top performers on the Nikkei.

The market's negative reaction follows the Nikkei's strong performance in February, during which it rose 10.4%, marking its best monthly showing in four months. On Friday, the index closed at an all-time high of 58,850.27 points. "The market was negatively affected after the Nikkei hit a record high last week... The conflict in the Middle East has become an excuse to sell shares and realize profits," said Takamasa Ikeda, senior portfolio manager at GCI Asset Management.