Japan’s Nikkei Stock Average, Bonds Hit Multi-Month Lows on War-Driven Inflation Fears (UPDATE 1)

Reuters

11:53 JST, March 23, 2026 (updated at 16:30 JST)

TOKYO, March 23 (Reuters) – Japan’s stocks and bonds sank to multi-month lows on Monday as an escalation in the Middle East war stoked inflation fears and concerns over an economic slowdown.

The Nikkei slumped as much as 5% earlier in the session, wiping out the gains it made this year. The index ended 3.48% lower at 51,515.04. The broader Topix was down 3.41% at 3,486.44. Both indexes ended at their lowest close since January 8.

The 10-year Japanese government bond yield jumped as much as 6 basis points to 2.320%, its highest point since January 21, and was last traded at 2.305%.

Bond yields move inversely to prices.

“Uncertainties over the Middle East war prompted investors to become more cautious about having risk assets,” said Masahiro Ichikawa, chief market strategist, Sumitomo Mitsui DS Asset Management.

“Depending on how long the war drags on, the Nikkei could fall below the 50,000 level.”

The Nikkei had surged to a record high of 59,332.43 last month and was on track to breach the 60,000 mark, fueled by expectations that Prime Minister Sanae Takaichi’s stimulus plan would accelerate corporate growth.

The index ended more than 13% lower than that level on Monday, as the Strait of Hormuz, which supplies 90% of Japan’s oil,remains closed.

Iran said on Sunday it would strike the energy and water systems of its Gulf neighbors if U.S. President Donald Trump followed through with a threat to hit Iran’s electricity grid in 48 hours, extinguishing any hope of an early end to the war, now in its fourth week.

Trump said on Sunday that Iran had 48 hours to open the vital strait, which is effectively closed for most vessels.

Inflation may add pressure on global central banks to raise interest rates, which is negative to equities, said Shuutarou Yasuda, a market analyst at Tokai Tokyo Intelligence.

Index heavyweights chip-related shares led the Nikkei’s decline, with Advantest and Tokyo Electron falling 5.21% and 2.62%, respectively.

Of more than 1,600 stocks trading on the Tokyo Stock Exchange’s prime market, 95% declined, and 4% advanced.