Nikkei Drops for Third Session, Higher Oil and Yen Weigh

The Nikkei 225 closed Thursday (September 10th) trading down around 1% to below 64,600, extending its decline for the third consecutive session. The Topix index also weakened around 0.65% to around 4,020, as investors reduced exposure to riskier assets amid rising energy prices and global bond yields.

The main pressure came from oil prices, which remained above US$100 per barrel due to the US-Iran conflict and shipping disruptions in the Middle East. The energy surge raised inflation concerns and increased production cost risks for Japanese companies heavily dependent on oil and gas imports.

Market sentiment was also weighed down by rising US Treasury yields. The 10-year yield remained around 4.84% after previously reaching its highest level since 2023, while the planned US Treasury buyback of up to US$6 billion was deemed insufficient to calm the bond market. Wall Street's weakness in the previous session also weighed on Asian stock trading.

Domestically, investors are increasingly considering the possibility of the Bank of Japan raising interest rates again. BOJ Board Member Kazuyuki Masu said the central bank may need to raise rates more quickly if inflationary pressures intensify. Expectations of tighter policy support have supported the yen but have put pressure on shares of exporters and companies with significant overseas revenues.

Technology and consumer stocks were among the biggest decliners, with Fujikura down 4.4%, Furukawa Electric down 4.9%, Ibiden down 3.1%, Nintendo down 3.8%, and Fast Retailing down 1.5%. Newsmaker analysis: The combination of oil above US$100, high global yields, a strong yen, and expectations of a BOJ rate hike still make the Nikkei's outlook vulnerable in the short term.