One of the most striking aspects of this market turmoil was the sharp increase in the Nikkei volatility index, which surged to 23.87, a level not seen in a long while.
Japan’s Nikkei 225 (INDEXNIKKEI: NI225) share average faced a tumultuous day as it closed below the psychologically significant 31,000 level earlier today, primarily due to escalating events in the Middle East. This geopolitical unease sent a key volatility gauge spiking to a one-year high.
Nikkei 225 Performance Breakdown
According to reports, the Nikkei fell by 0.83% and ended the day at 30,999.55. It had earlier reached a two-week low of 30,974.26 throughout the trading day, and just as it appeared the negative trend would slow, selling surged back in within the last two minutes of trade.
Moreover, out of the 225 components that make up the Nikkei, 175 sank, only 48 managed to increase, and two remained unchanged. This widespread decrease reflects investors’ lack of confidence as many tried to reduce their exposure to the market out of concern for additional downside.
One of the most striking aspects of this market turmoil was the sharp increase in the Nikkei volatility index, which surged to 23.87, a level not seen in a long while. The spike in volatility indicates investors’ growing unease about future market fluctuations, which can result in unpredictable market behavior and diminished investor confidence.
Further emphasizing the market’s volatility was a 0.75 percent decline in the larger Topix index. The Nikkei’s performance was significantly impacted by the volatility in crude oil prices as they declined from multi-week highs. Particularly resource shares took the biggest hit from this decline.
Pacific Metals Co Ltd (TYO: 5541) suffered the most significant percentage decline, dropping by 4.83%, and Eneos Holdings Inc (TYO: 5020) sank by 3.01%. Among the Tokyo Stock Exchange’s 33 industry groups, oil and coal producers led the losses with a drop of 2.79%. The mining industry followed with a decline of 2.48%, and iron and steel companies saw a slide of 2.22%.
Additionally, chip-related shares also underperformed, aligning with their US counterparts as long-term Treasury yields reached 16-year highs, affecting the outlook for so-called growth stocks.
Tensions in the Middle East
Maki Sawada, a strategist at Nomura Securities, pointed out, “concerns about a possible worsening of Middle East tensions will continue to be a weight on the Japanese stock market”. The situation in the Middle East has proven time and again to have a profound impact on global financial markets due to its geopolitical sensitivities.
Over the weekend, the risks escalated as the Israel-Hamas conflict raised concerns about potentially evolving into a wider and more destabilizing conflict. Washington’s warning of a significant risk to US interests in the region and the announcement of a new deployment of advanced air defenses added to the unease.
However, there were some positive developments amidst the tension. Ongoing diplomatic efforts led to the arrival of aid convoys in Gaza, and the release of two American hostages by Hamas raised hopes for further progress.