Oil is the dominant risk for Japanese assets near term: as a major energy importer, Japan is exposed to any further rise in crude tied to the Iran conflict, which would pressure corporate margins and the trade balance and keep the yen soft near 157 per dollar. A sustained climb in oil would also reinforce imported inflation, complicating the BOJ’s preference to wait and potentially pulling hike expectations forward from January. With a hold fully priced, the yen and JGB yields are likely to react to guidance rather than the decision, and a more hawkish tone could offer the currency some relief. Tech and chip-related names remain the most sensitive part of the market to risk-off swings driven by Middle East headlines.
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Tokyo stocks are trading at the mercy of Middle East headlines and oil, while the BOJ is expected to sit tight this week and save its next moves for the new year.
Summary:
The Nikkei Stock Average fell about 0.5% to around 62,400, with semiconductor and electronics shares leading declines amid concerns over the Iran conflict and higher energy costs
Advantest fell 1.7% and Murata Manufacturing slipped 1.0%; the dollar held around 157 yen, little changed from Friday’s Tokyo close
Investors are watching Middle East developments and crude after oil hit a five-month high on Friday
ING expects the BOJ to keep its policy rate at 1.25% this week as it assesses last month’s hike, with 25bp increases in January and April 2027 taking the rate to 1.75%
ING says policymakers may want more time to monitor the economy as government support for domestic demand continues, leaving the focus on tone and messaging
Tokyo October CPI is expected to show headline inflation steady and core easing slightly; September retail sales and industrial production are also due
Japanese shares moved lower on Monday as worries about the Iran conflict and rising energy costs continued to weigh on sentiment, with technology stocks bearing the brunt of the selling.
The Nikkei Stock Average fell about 0.5% to around 62,400, led by declines in semiconductor and other electronics shares. Chip testing equipment maker Advantest dropped 1.7%, while electronic components producer Murata Manufacturing lost 1.0%. In currency markets, the dollar traded around 157 yen, little changed from levels at Friday’s Tokyo stock market close.
Investors are keeping a close eye on developments in the Middle East and on crude oil, after oil prices climbed to their highest level in five months on Friday. For an economy heavily dependent on imported energy, elevated oil prices raise costs for businesses and households alike, and market participants are likely to stay cautious until there is greater clarity on the conflict’s direction.
Turning to monetary policy, the Bank of Japan is expected to keep its policy rate unchanged at 1.25% at its meeting this week as it gauges the effects of last month’s rate increase, according to ING economists. Their base case assumes two further 25 basis point hikes, in January and April 2027, which would lift the policy rate to 1.75%.
ING noted that while inflation remains elevated, policymakers may prefer to take more time to monitor the economy, particularly as the government continues to support domestic demand. With markets already pricing a hold, the bank said attention will centre on the tone of the BOJ’s messaging and on a fresh round of economic data.
Those releases include Tokyo inflation figures for October, where consensus, according to ING, expects headline CPI to hold steady year on year and core inflation to ease slightly. Nationwide retail sales and industrial production data for September are also due. Taken together, the BOJ’s guidance and the incoming data are likely to shape expectations for how soon the next rate hike arrives.
This article was written by Eamonn Sheridan at investinglive.com.
