The Nikkei 225 Index pulled back from its record highs as crude oil prices jumped amid new hostilities between the US and Iran. It dropped to ¥62,452 on Friday, a few points below the year-to-date high of ¥63,000. Still, technicals suggest that the blue-chip index has more gains to go in the near term.
Japan stocks ease as US-Iran war risks rise
The Nikkei 225 Index reopened on Thursday after being closed during the Golden Week. It jumped to a record high, helped by the ongoing artificial intelligence (AI) boom and the potential deal between the United States and Iran.
However, there is a risk that the ongoing hostilities between the US and Iran are returning as they exchanged fire at the Strait of Hormuz. The US fired at several targets along the Strait, with Iran accusing the US of violating the ceasefire agreement. In his statement, Trump said that the US had sunk several Iranian small boats after Iran fired at a US destroyer.
Iran warned that it will respond powerfully to the attacks. As a result, Brent and the West Texas Intermediate remained above $100 on Friday, a sign that investors are still concerned about global supply.
Soaring crude oil prices are normally bearish for Japan because the country imports all its energy from countries in the Middle East. As a result, there is a risk that these prices will affect their margins, especially if the crisis escalates.
An escalation will likely be worse than in the first phase of the war as Iran has identified several oil infrastructure targets in the region.Just this week, the IRGC fired at a target in Fujairah, in the United Arab Emirates.
Some of the options will be the shutting of the Red Sea, where Saudi Arabia is exporting millions of barrels per day. It may also attack oil fields in the region, while some influential US commentators are urging Trump to bomb Kharg Island, which handles over 90% of Iranian oil exports.
Japan earnings season continues amid profit-taking
The ongoing Nikkei 225 Index retreat happened as investors started to book profits after the recent surge. It is common for an asset to retreat whenever it hits a record or an important resistance level. Softbank stock, which soared to ¥6,437 on Thursday, pulled back and moved to ¥6,112 today, with focus now being in its upcoming earnings.
The Nikkei 225 Index also pulled back as the Japan earnings season continued. Nintendo, Nippon Telegraph, and Japan Tobacco will release their numbers later today.
Some of the top companies to watch next week aa they release their earnings are Mitsubishi Heavy Industries, Sumitomo Electric, Panasonic, Daikin, and Sony.
Most importantly. Japanese banks will be in the spotlight as they publish their financial results. Some of the most notable of them are Sumitomo Mitsui Financial, Mizuho Financial, and Mitsubishi UFJ. Other large companies are that will release their numbers next week are Recruit Holdings, Fujikura, Honda Motor, Takeda, and Mitsubishi Estate
Nikkei 225 Index technical analysis
Nikkei Index chart | Source: TradingView
The daily timeframe chart reveals that the Nikkei Index jumped to a record high on Thursday and then pulled back slightly today. It moved to ¥62,405, a few points below the year-to-date high of ¥62,795.
The index remains above the key resistance level at ¥59,297, the upper side of the cup-and-handle pattern. C&H is one of the most common bullish continuation signs in technical analysis.
Therefore, the most likely scenario is where the index continues rising, with the next key target being at ¥65,000.
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