Japanese equities had to digest the negative news of failed U.S.-Iran ceasefire talks at the open on the 13th, but ultimately avoided testing new lows, with the TOPIX briefly edging into positive territory. Expectations that Iran?holding the Strait of Hormuz blockade card?would simply yield to straightforward U.S. demands to immediately reopen the strait were unrealistic from the outset. President Trump's swift announcement of a U.S. military 'counter-blockade' of the strait caught the market off guard. While Nikkei 225 futures for June briefly dipped below the 56,000 mark in early Chicago trading, the cash market sustained levels above 56,000 throughout the Tokyo session.

President Trump also suggested in a U.S. media interview that 'Iran will return to the negotiating table.' With the president oscillating between hardline and conciliatory rhetoric in such a short window, market participants profiting from TACO (Trump Always Chickens Out) trades have been left sidelined. Conversely, U.S. crude oil markets reacted sharply, with WTI futures briefly surging to the $105-a-barrel mark. Amid simmering inflation fears fueled by higher oil prices and speculation of an early BOJ rate hike, the Japanese long-term interest rate spiked to 2.490% at one point (triggering a plunge in bond prices). This level surpasses the 1998 'Trust Fund Bureau Shock'?when rates surged on speculation that the Ministry of Finance would halt JGB purchases?marking a roughly 29-year high.

In the FX market, the dollar-yen pair trended toward the upper 159 yen range on broad greenback strength, culminating in what appears to be a triple sell-off across stocks, bonds, and the yen. Rising oil prices from the Hormuz blockade coupled with a weak yen will likely mount pressure on the government for price-relief measures, threatening further deterioration of Japan's fiscal health. Although the Nikkei's daily decline resembled a 'soft landing' in terms of the absolute point drop, market watchers caution against complacency. 'Global inflationary pressures stemming from surging oil prices should not be underestimated. There are valid concerns over the potential drag on U.S. consumer spending, making the current market stance seem overly optimistic,' noted one analyst. Unquestionably, rigorous risk management remains essential in this elevated volatility environment.

That said, investors have grown noticeably aggressive in scooping up shares with positive catalysts. A prime example is YASKAWA Electric Corporation <6506>, which surged 7% at the close after announcing post-market on the 10th that it projects its first operating profit increase in four fiscal years for the year ending February 2027. Catalyzed by this, physical AI-related plays like KIKUCHI SEISAKUSHO CO., LTD. <3444> and HEPHAIST Co., Ltd. <6433> staged sharp rallies.

For machinery makers, expectations are mounting that a recovery in overseas demand, alongside semiconductor-related tailwinds, will bolster earnings. According to preliminary March machine tool orders released by the Japan Machine Tool Builders' Association on the 9th, total orders jumped 28% year-on-year, driven by robust 40.4% growth in external demand. 'Compared to the defense and semiconductor sectors, capex-related stocks have flown under the radar. We expect momentum to build for a reassessment of companies with solid earnings potential,' a strategist commented, drawing attention to whether machinery stocks can sustain their upward rerating via sector rotation.

Among machine tool names, DMG MORI CO., LTD. <6141> and OKUMA Corporation <6103> are exhibiting clear recovery trends. Sodick Co., Ltd. <6143>, an electric discharge machine manufacturer, has rallied for six consecutive days; while looking technically overheated in the near term, its PBR remains around 0.8x. Global press machine giant AIDA ENGINEERING, LTD. <6118> trades at a PBR of roughly 0.7x and is seeing rising expectations regarding its physical AI developments. JUKI CORPORATION <6440>, anticipated to see profitability recover post-structural reforms, and KITAGAWA SEIKI CO., LTD. <6327>, a maker of press machines for PCBs, are also gaining upside momentum. Technically, however, the Nikkei's daily chart formed a bearish inside day (harami) pattern at recent highs, signaling a potential near-term market consolidation. Investors should keep related stocks on their radar with a buy-on-dips strategy.

Looking ahead to tomorrow, domestic releases include final February figures for industrial production and capacity utilization, alongside a Ministry of Finance 20-year JGB auction. Overseas, markets await China's March trade balance, the U.S. PPI, and the IMF's World Economic Outlook. Markets in Thailand and India will be closed. (Yoshiyuki Osada)

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.