Japanese Equities Decline 5% Amid Heightened Iran Tensions and Surging Oil Prices

Japanese equities fell as worries over the intensifying conflict in Iran and rising oil prices dampened risk sentiment, with the hostilities now in their fifth week.

The Nikkei 225 Stock Average dropped up to 5.1%, and the Topix index declined as much as 4.6% during early trading in Tokyo. The electronics and banking sectors were the primary drags on the broader Topix index.

Expectations of a prolonged war in the Middle East are likely to push Japanese stocks to test lower levels, according to Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Lab.

The market decline on Monday followed the Houthi group's entry into the Iran conflict over the weekend, which increased tensions in the Middle East. Additional U.S. military forces have also been deployed to the region.

Hirakawa noted that elevated oil prices are raising concerns about the adverse effects on Japanese firms, including challenges in sourcing raw materials.

Monday also marked the ex-dividend date for numerous companies with fiscal years ending in March and September, which is expected to add downward pressure on the major indexes as investors secure dividend payments. Based on data compiled by Bloomberg, ex-dividend stocks could reduce the Topix by about 35 points and the Nikkei 225 by roughly 357 points.