West Asia Impasse Overshadows Tokyo Stocks Despite Record-Setting Rally

TOKYO, April 26 (Bernama-Kyodo) -- An impasse in US-Iran peace talks and Japan's oil supply concerns may overshadow optimism in the Tokyo stock market going forward, despite the benchmark Nikkei Stock Average's recent record-setting rally led by artificial intelligence growth hopes, analysts say.

Kyodo News reported that Nikkei's rally on Thursday, which reached the 60,000-point level for the first time, was largely supported by gains in heavyweight technology components.

But the market soon became vulnerable to selling by investors seeing signs of overheating after the index surged nearly 20 per cent from the start of the year.

Market analysts do not expect an immediate turning of the tide in the stock market at a time when major Japanese companies are expected to report solid profit growth as the corporate earnings season gets in full swing later this month.

Analysts warn, however, that the market's correction could be prolonged if the U.S.-Iran ceasefire deal continues to hang in the balance and room for diplomacy gets slimmer.

The U.S.-Israel war on Iran and the consequent blockage of the Strait of Hormuz by Tehran have shaken the energy security of Japan, which heavily relies on West Asian oil, forcing chemical makers to cut back output and the government to tap massive reserve funds to subsidise oil refiners.

Good U.S. corporate earnings and the strong performance of technology shares are supporting stocks of Japanese counterparts such as SoftBank Group Corp. and Tokyo Electron Ltd., and keeping hopes alive for further gains on the Nikkei beyond its record intraday high of 60,013.98, reached on Thursday.

"As U.S. technology shares are highly likely to stay strong, Japanese heavyweight counterparts could push (the Nikkei) beyond the 60,000 line", again said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management Co.

There are views in the market, however, that Japan's corporate earnings may not necessarily provide an impetus for the market's renewed gains.

Some analysts point to the possibility of major firms releasing conservative profit outlooks as long as hostilities in West Asia continue to choke off supply chains for a range of Japanese manufacturing sectors.

Stock market traders say that the Topix index of all major issues on the Tokyo bourse, which significantly underperforms the Nikkei, better reflects investors' cautious views on Japan's business climate. It is another reason why many investors have been flocking to beneficiaries of AI growth, they say.

As of Friday, the Topix was up 9 per cent from the start of 2026 but nearly 6 per cent off its all-time high reached in late February.

"It may be difficult for Japanese companies' earnings themselves to act as a catalyst for further (stock market) gains, as their guidance is likely to remain modest," Ichikawa said.

Masahiro Yamaguchi, head of investment research at SMBC Trust Bank, said the Nikkei is "currently experiencing an extreme rally driven by optimistic expectations, and is likely to solidify its footing above 60,000 after going through corrections."

"Even if diplomatic efforts (in West Asia) continue and provide psychological support, the negative impact of elevated crude oil prices could become more pronounced if they remain high for an extended period," Yamaguchi said.

Analysts largely agree that high crude oil prices are weighing on investor sentiment and that even encouraging developments on the West Asia front may only have a brief impact on the stock market for the time being, given that the global financial markets have already recouped much of their Iran conflict losses and are looking beyond the crisis.

"The earnings results could be a trigger to prompt selective buying" of underperformers, said Shota Sando, equity market analyst at Tokai Tokyo Intelligence Laboratory Co., but he added that even if the United States and Iran reach a deal, "Buying is unlikely to broaden significantly, and gains may remain modest."

-- BERNAMA-KYODO