The Nikkei 225 Index slipped by over 2.2% on Thursday morning as the crisis in energy accelerated. The index, which tracks the top companies in Japan, dropped to ¥53,855, down by 10% from the all-time high.
Japan stocks crash as crude oil prices surge
The Nikkei 225 Index remained on edge as energy prices continued the uptrend, with Brent, the global benchmark, rising to $100, and the West Texas Intermediate (WTI) soaring to over $95. Natural gas prices soared by over 1.5% on Thursday.
Crude oil prices soared after Oman evacuated ships from key terminals out of precaution of an imminent attack. At the same time, Iraq slashed production after two ships were attacked.
As a result, Goldman Sachs raised the Brent forecast for the fourth quarter to $71 a barrel from $66. More analysts believe that prices will continue rising in the foreseeable future as the Strait of Hormuz closure continues.
Crude oil prices surge accelerated, even after the International Energy Agency (IEA) announced that its member states would release 400 million barrels of oil. The US will release 172 million barrels of oil from the Strategic Oil reserves.
Therefore, oil prices are soaring as investors predict that the Strait of Hormuz closure will outweigh the Strategic Oil Reserves release.
Iran’s economy has been destroyed during this war, and its leaders believe that it is in its interest to continue the war and push crude oil prices to over $200 in the near term.
Japan will be one of the most affected countries as that war drags on since it has no major energy resources. It relies mostly on oil and gas imports from the Middle East, which has largely stopped flowing.
The rising energy prices mean that Japan may move into stagflation, a situation characterized by high inflation and slow economic growth.
Stagflation is one of the riskiest economic situations as it leaves the central bank in a bind. Another Bank of Japan (BoJ) interest rate hike will slow the economy, while interest rate cuts will lead to higher inflation in the country.
Most Nikkei 225 Index companies were in the red on Thursday. For example, Denka, a top chemicals company, was the worst performer as it dropped by over 5.87%.
Japan Exchange Group, SUMCO, SHIFT, Resona Holdings, Softbank, Mitsui Fudosan, Tokyo Tatemono, Mizuho Financial, and Yokohama Financial Group tumbled by over 4%.
On the other hand, some companies like Japan Steel Works, Kawasaki Heavy Industries, Nintendo, Inpex, and Mitsubishi Heavy Industries jumped by over 1.4%.
Nikkei 225 Index technical analysis
The daily timeframe chart shows that the Nikkei 225 Index has crashed in the past few weeks, moving from a high of ¥59,332 to the current ¥54,000.
It has moved slightly below the 50-day Exponential Moving Average (EMA). Also, the Nikkei Index has dropped below the Supertrend indicator.
The two lines of the MACD indicators formed a bearish crossover pattern and moved below the zero line. Also, the Relative Strength Index has dropped below the neutral point at 50.
Therefore, the index will likely continue falling as sellers target the next key target level at ¥51,388, its lowest level this month.
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