Japan’s Nikkei Drops, Volatility Spikes on Middle East Concerns

Reuters

12:04 JST, October 23, 2023

TOKYO, Oct 23 (Reuters) – Japan’s Nikkei share average fell on Monday as events in the Middle East kept investors on edge, with a gauge of volatility spiking to the highest in 10 months.

The Nikkei .N225 slid 0.81% to 31,007.12 by the midday recess, hitting a two-week low. Of its 225 components, 161 fell versus 62 that rose, with two flat.

A Nikkei volatility index .JNIV spiked as high as 23.81, a level not seen since Dec. 20.

The broader Topix .TOPX declined 0.42%.

“Concerns about a possible worsening of Middle East tensions will continue to be a weight on the Japanese stock market today and indeed all this week,” said Maki Sawada, a strategist at Nomura Securities.

Fears that the Israel-Hamas war could mushroom into a wider conflict rose over the weekend with Washington warning of a significant risk to U.S. interests in the region and announcing a new deployment of advanced air defenses.

However, ongoing diplomatic efforts saw aid convoys start to arrive in Gaza, and Hamas’s release of two American hostages buoyed hopes for the release of others.

Crude oil LCOc1 continued to climb down from multi-week highs, which made resource shares the Nikkei’s worst performers on Monday.

Pacific Metals 5541.T was the biggest percentage decliner, dropping 4.21%. Refiner ENEOS 5020.T sank 2.76%.

Among the Tokyo Stock Exchange’s 33 industry groups, oil and coal producers .IPETE.T led losses by dropping 2.58%. Mining .IMING.T was next, down 2.1%, followed by a 1.4% slide for iron and steel companies .ISTEL.T.

Chip-related shares also underperformed, tracking U.S. peers .SOX as long-term Treasury yields US10YT=RR at 16-year highs dimmed the outlook for so-called growth stocks.

Advantest 6857.T dropped 3.05% and Renesas Electronics 6723.T sank 2.47%.

The top performing sector was pharmaceuticals .IPHAM.T, rising 1.24%, powered for a second day by Daiichi Sankyo 4568.T following a $5.5 billion deal with Merck MRK.N to jointly develop cancer drugs. Daiichi Sankyo advanced 4.47%, while peer Astellas Pharma 4503.T also gained 2.18%.