Nikkei Surges as Trump Signals Near Deal with Iran; Market Reacts to Middle East Peace Possibility
Japanese equities rallied sharply after US President Donald Trump indicated that a deal with Iran was imminent, fueling expectations that tensions in the Middle East might be nearing an end. The market reacted strongly to this sentiment shift, providing a significant boost to domestic stocks.The Nikkei 225 Stock Average surged by 2.8%, reaching 66020.04 as of the Tokyo market close. This marked the most substantial rise since May 25. The broader Topix climbed 1.4% to 3881.96, registering its first increase in three days.
##Impact of Geopolitical Calm on Japanese Markets
Oil prices tumbled following Trump's statement that a peace agreement with Iran could be signed as early as the weekend. During a virtual campaign rally, he claimed the US had "ended the war with Iran." This optimistic outlook has been strongly reflected in investor sentiment across various sectors.
Koji Takeuchi, a senior research fellow at Itochu Research Institute, noted that "Sentiment has improved as a result of Trump’s comments," suggesting investors are reacting positively to the prospect of a deal being within reach. However, he also cautioned that there is a risk of sentiment collapsing if these deal expectations are not met.
##Tech and Chip Stocks Lead the Rise in Japanese Equities
The current heightened risk-on mood has become a significant tailwind for technology and AI stocks. Many had experienced sales pressure earlier this week due to fears surrounding escalating tensions in the Middle East.
Memory chipmaker Kioxia Holdings and chip tester manufacturer Advantest Corp. both registered gains exceeding 7%. These strong performances were bolstered by the general improvement across electronics and banking sectors, which contributed heavily to the Topix gains.
##Supply Chain Easing as Oil Sentiment Improves
The possibility of diplomatic progress has provided relief to concerns regarding supply chain disruptions in the Strait of Hormuz. Trump's proposed agreement reportedly includes reopening this vital waterway, though Iranian media sources have stated that Tehran has not approved any such deal.
Concerns over shortages in the Middle East had previously weighed heavily on Japanese manufacturers, particularly automakers. Prior to the conflict, Japan relied on the Middle East for over 90% of its crude oil imports, and shortfalls in products like naphtha had already triggered production halts and price increases within the country.
##Global Market Tailwind: SpaceX IPO Provides Extra Boost
The rally was further supported by global market dynamics, including the record-breaking initial public offering (IPO) of Elon Musk's SpaceX, which raised $75 billion. The stock is scheduled to begin trading in the US on Friday.
Takeuchi pointed out that many investors likely sold other assets to position themselves for the SpaceX IPO. He suggested that as the IPO concludes, some existing supply-demand pressures will ease, offering an additional positive tailwind to equities globally.
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