The Japanese stock market endured a day of historic volatility on Monday as the Nikkei 225 suffered a massive sell-off driven by escalating conflict in the Middle East and a surge in crude oil prices. In a session defined by panic selling, the benchmark index reached its most dramatic moment when it briefly plunged more than 4,200 points.

The Nikkei eventually finished the day down 2,892.12 points, or 5.2%, at 52,728.72. Despite the slight recovery from the session lows, the final figure represents the third-largest point drop in history. The broader Topix index also felt the sting, closing 141.09 points lower at 3,575.84. On the Prime Market, losses were broad-based, with nonferrous metals, machinery, and glass products leading the decline.

Heavyweight technology stocks—the darlings of the market through February—were hit particularly hard as investors rotated out of high-growth assets. The primary catalyst for the rout was a weekend of geopolitical upheaval. Crude oil prices spiked as prospects for a swift resolution to the Middle East conflict evaporated.

West Texas Intermediate crude futures briefly surpassed $119 per barrel in New York on Sunday, March 8, a peak not seen since June 2022. The appointment of Mojtaba Khamenei as Iran’s supreme leader, following the death of his father, Ayatollah Ali Khamenei, signaled to markets that Iran’s hard-line stance is unlikely to soften. Furthermore, reports that President Donald Trump has expressed interest in deploying U.S. ground troops inside Iran sent a chill through trading floors.

“The market already seems to be factoring in four or five more weeks [of conflict], or even longer, as President Trump has said,” Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management Co, is quoted as saying.

The energy crisis put immediate pressure on the Japanese yen. The U.S. dollar rose to the upper 158 yen range in Tokyo as traders weighed the impact of surging energy costs on Japan’s import-dependent economy. Strategists at Nomura Securities Co. suggested that even with a change in Iranian leadership, the underlying religious and political regime remains a constant, suggesting the risk premium on oil—and the subsequent pressure on stocks—could be a long-term fixture.

The turmoil in Tokyo was mirrored across major Asian financial hubs Monday as the combination of surging energy costs and geopolitical instability triggered a widespread regional sell-off. In South Korea, volatility was extreme, forcing the Korea Exchange to activate a circuit breaker for 20 minutes during the morning session after the index plummeted more than 8%. The benchmark Kospi closed down 333 points, or 6%, at 5,251.87.

In Hong Kong, the Hang Seng Index dropped 349 points, or 1.4%, to finish at 25,408. The Shanghai Composite fell 0.7% to close at 4,096, while the tech-heavy STAR Composite Index shed 1.4%.

• What caused the recent drop in the Nikkei 225? A massive sell-off was driven by escalating Middle Eastern conflict and rising crude oil prices.
• How significant was the decline in the Nikkei 225? The index fell by 2,892.12 points, marking a 5.2% decrease, the third-largest drop in history.
• What sectors were most affected by this market downturn? Nonferrous metals, machinery, and technology stocks led the broad-based losses on the Prime Market.
• How did this volatility impact the Japanese yen? The yen faced pressure, with the U.S. dollar rising to the upper 158 yen range as energy costs surged.

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