Nikkei Falters; Strong Yen and High Oil Prices Weigh on Market

Japanese stocks traded flat in early Wednesday trading (Sept. 9) as investors weighed a surge in oil prices, a strengthening yen, and rising expectations of interest rate hikes. The Nikkei 225 index traded around 65,270, showing little directional movement following volatility in the previous session.

Primary pressure stemmed from rising oil prices, which reignited inflation concerns. Energy prices continued to climb after U.S. forces destroyed five Iranian crude oil tankers near Kharg Island in retaliation for a missile attack attempt on a U.S. warship. This situation raised the risk of higher energy and production costs for Japanese companies heavily reliant on imports.

Investors also kept a close watch on the yen, which had previously reached its strongest level in nearly seven months. The Japanese currency was bolstered by growing expectations of a normalization in Bank of Japan policy and the unwinding of carry trade positions. A stronger yen can dampen the earnings outlook for Japanese exporters by reducing the value of overseas revenue when converted back into yen.

Market sentiment remained sensitive after U.S. Treasury Secretary Scott Bessent stated he had a good understanding of the Bank of Japan's plans to support the currency. His remarks reminded market participants of potential policy moves that could further strengthen the yen.

Stock movements were mixed. SoftBank Group rose 3.9%, Fujikura surged 7.9%, and Lasertec gained 5.6%. Conversely, Nintendo fell 2.8%, Recruit Holdings weakened 2.9%, and Fast Retailing lost 2.4%.