Nikkei Falls as BoJ Hike Odds Rise, Geopolitics Weigh

The Nikkei 225 fell to 65,325 on Monday as investors stepped up bets on Bank of Japan rate increases after stronger-than-expected July industrial production and retail sales. Limited U.S. strikes near the Strait of Hormuz and hawkish U.S. policy comments weighed on sentiment.

Japan’s statistics office reported industrial production rose 3.6% year-on-year and 0.1% month-on-month in July. Retail sales increased 4.0% in July, above median forecasts. Those releases followed relatively strong Tokyo inflation readings earlier this month. Japanese government bond yields rose in response.

Market participants are awaiting S&P Global manufacturing and services PMI readings this week for additional domestic signals. Traders are also focused on upcoming U.S. data, including nonfarm payrolls and U.S. PMIs, which could affect foreign-exchange flows and global rate expectations.

The U.S. conducted limited strikes targeting Iranian rocket launchers near the Strait of Hormuz. Market commentary noted a risk that Iranian retaliation could lift crude prices; some analysts have outlined scenarios that would push Brent toward $90 and West Texas Intermediate toward $85. Higher crude would raise input costs for Japanese manufacturers and energy importers.

At the Jackson Hole symposium, former Federal Reserve governor Kevin Warsh argued that U.S. inflation remained elevated and stressed the Fed’s aim of returning inflation to 2%. Traders increased the probability of a December rate rise following those remarks.

Technically, the index has retreated from a peak near 69,577 earlier this month to about 65,361. It moved below its 50-day moving average and is approaching a support level near 64,653. Momentum indicators, including the Relative Strength Index and the MACD, are trending downward.

Japan depends heavily on oil imports that transit the Strait of Hormuz. The Bank of Japan has maintained highly accommodative policy for years. Stronger domestic demand indicators and higher Tokyo inflation readings have pushed market pricing toward a greater probability of BoJ tightening later this year.