The Nikkei 225 slipped 0.6 percent on Sept. 7 as electronics and machinery shares fell, with investors cautious over Middle East conflict escalation and the Federal Reserve's policy path. The yen strengthened past 160 per dollar while Japan's 10-year yield reached 3 percent.
Japanese stocks fell, with the Nikkei 225 dropping 0.6 percent as persistent Middle East conflict and Federal Reserve policy uncertainty curbed risk appetite.
"The Federal Reserve will likely be just beginning to raise rates," George Brown, senior economist at Schroders, said, flagging that diverging central-bank paths are widening rate differentials in favor of the dollar.
Electronics and machinery shares led the decline, dragging the benchmark lower as investors trimmed exposure to export-oriented manufacturers. The move tracked Wall Street's overnight session and compounded as crude climbed on renewed fighting between the US and Iran, with Brent futures up 0.6 percent to $91.05 a barrel and West Texas Intermediate rising 1 percent to $86.59. Iran shut the Strait of Hormuz, which carried about a fifth of global oil supplies before the war erupted in late February, and the number of visible commodity vessels transiting the waterway has dropped to five per day, Kpler shipping data showed. A tanker reported being struck by three projectiles while sailing out of the strait, the United Kingdom Maritime Trade Operations agency said.
The yen was an exception to dollar strength, climbing to 158.81 against the greenback — above the psychologically important 160-per-dollar level — as markets weighed the Bank of Japan's rate path. BoJ Governor Kazuo Ueda said consecutive rate hikes could be a possibility, while board member Hajime Takata struck a hawkish tone. Japan's benchmark 10-year yield extended its rally to 3.01 percent after reaching a three-decade milestone of 3 percent on Tuesday.
"Tactically, the wise move may be to look for the yen to rally from here to the meeting on 18 September, but to sell it quite soon afterwards unless the underlying economic data surprise on the upside," Kit Juckes, strategist at Societe Generale, said.
The dollar index rose 0.20 percent to 99.865, its highest since August 17, as investors turned to the US currency on concerns about the economic impact of the energy shock. Markets are pricing in a 68 percent chance of a September Fed hike, up from around 40 percent a week earlier, according to CME Group's FedWatch tool. The yield on the benchmark US 10-year note rose to as high as 4.8182 percent, its firmest since November 2023, while the Fed confronts a growing risk of having to tighten policy in 2027.
For Japanese equities, near-term direction hinges on whether the Middle East conflict escalates and how the Fed's September meeting resolves the policy uncertainty that has kept investors cautious. A further rise in oil would squeeze import costs for Japan's energy-dependent economy, while a hawkish Fed would keep the dollar strong and pressure the yen — a combination that has historically weighed on exporter margins and the broader Nikkei.
This article is for informational purposes only and does not constitute investment advice.
