Japanese Market Likely to See Triple Decline on Middle East Tensions, with High Oil Prices and Rising Interest Rates as Drags

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On May 2, the Japanese market is expected to see both stocks and bonds decline, with the yen also trading in a weak range, making a triple decline highly likely amid heightened Middle East tensions. The US began attacks on Iran's Revolutionary Guard, and Iran retaliated, causing oil prices to surge and long-term interest rates to rise on concerns of a global resurgence in inflation. The US 10-year Treasury yield hit its highest level since October 2023, the UK 30-year gilt yield reached its highest since 1998, and Japan's 10-year government bond yield is expected to rise further from its 30-year high of 3%. In the stock market, following the S&P 500 index hitting a one-month low on May 1, Japanese stocks are also expected to see selling pressure. In the foreign exchange market, the yen weakened to 160.27 against the dollar, with expectations of an early rate hike by the Bank of Japan providing support, while US Treasury Secretary Bessent expressed support for Japanese authorities' market measures.

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