Japan stocks plunge by nearly 2%: Hormuz Strait blockade boosts oil prices, and bank stocks rally against the trend

On July 13, 2026, the Tokyo stock market in Japan opened the week with sharp volatility. The Nikkei 225 index closed at 67,242.73 points, down 1,315.00 points from last Friday, a decline of 1.92%. The Tokyo Stock Price Index (TOPIX) closed at 4,007.49 points, down 28.59 points, a decline of 0.71%. Total trading volume for the day was about 1.97558 billion shares.

Judging by intraday movement, the Nikkei index initially rose in the morning, boosted by gains in U.S. stocks from last Friday, but then quickly turned lower. During the session, the decline widened at one point to more than 1,900 points. Both major indices closed lower together, ending the prior three-day winning streak.

How the Middle East situation suddenly intensifying filters into Japan’s stock market

The immediate trigger for Japan’s sharp drop on July 13 came from the Middle East. According to Iranian media, on July 12, the Iranian Revolutionary Guard announced the reclosure of the Strait of Hormuz, and that passage by any vessels would not be allowed. As one of the world’s most critical energy transport routes, a closure of the Strait of Hormuz directly triggered a rapid rise in crude oil prices.

WTI crude oil futures for August delivery rose 3.44% to $73.87 per barrel. For Japan’s economy, which is highly dependent on energy imports, higher oil prices mean an across-the-board increase in companies’ production costs. Concerns that inflation would weigh on corporate performance spread rapidly through the market, becoming one of the core forces suppressing Japan’s stock market.

At the same time, the military standoff between the United States and Iran further escalated. The U.S. Central Command announced additional airstrikes, while Washington and Tehran issued conflicting statements on whether the Strait of Hormuz would be open to shipping. Geopolitical uncertainty directly suppressed investors’ risk appetite.

How South Korea’s stock market plunge and its linkage with semiconductors amplified Japan’s decline

On July 13, sharp volatility in South Korea’s stock market had a significant spillover effect on Japan’s stock market. On the day, the South Korean KOSPI index closed down 670 points, a plunge of as much as 8.96%, to 6,805.88 points. Earlier in the day, a circuit-breaker was triggered after the decline exceeded 8%.

The core reason behind the collapse in South Korea’s stock market was the plunge of semiconductor giant SK hynix. SK hynix fell 15.3% on the day, marking the largest single-day drop in its history. SK hynix’s U.S. depositary receipts (ADRs) were listed on the Nasdaq on July 10, and the gains accumulated ahead of the ADR listing were then unwound through concentrated profit-taking after the event. Samsung Electronics fell 10.7% as well.

The sharp downturn in the Korean market quickly spread to Tokyo. Because Japan and South Korea are highly connected in the semiconductor industry supply chain and also compete, the rout in South Korean semiconductor stocks directly triggered sell-offs in Japan’s similar names. In the Nikkei index, semiconductor and AI-related weighted stocks have a relatively large share, and this structural characteristic amplified the transmission of the external shock.

Why semiconductors and AI became the weakest sectors of the day

On July 13, semiconductor and AI-related sectors were the areas with the largest declines in Japan’s stock market. The main drag on the Nikkei 225 index came from core semiconductor stocks such as Kioxia Holdings, Advantest, and Tokyo Electron.

Specifically, Kioxia Holdings’ share price fell 12.86%; Advantest fell 3.39%; and Tokyo Electron fell 2.25%. In addition, electronics and semiconductor supply-chain stocks such as IBIDEN, TDK, Taiyo Yuden, Murata Manufacturing, FANUC, and Yaskawa Electric also weakened in tandem.

The broad drop in the semiconductor sector was not driven purely by geopolitical risk. A deeper reason is that AI- and semiconductor-related stocks had surged sharply over the preceding several quarters, accumulating substantial unrealized gains. Against the backdrop of rising uncertainty in the external environment, taking profits became a rational choice for institutional investors. Market analysts noted that because the earnings season for the United States and Japan will begin this week, AI-related stocks may enter a consolidation phase.

Why the banking sector strengthened against the trend and hit record highs

Against the backdrop of the Nikkei index falling sharply, Japan’s banking sector showed a clear defensive, anti-trend pattern, and some large banks even set new record highs.

On July 13, the share price of Mitsubishi UFJ Financial Group rose to a new high during the trading session since listing, and with a market capitalization of about 42 trillion yen it surpassed Toyota’s roughly 41 trillion yen, becoming the highest market-cap company in Japan that day. Sumitomo Mitsui Financial Group also hit a new high during the session since listing. Mizuho Financial Group’s share price rose 1.32%; Mitsubishi UFJ Financial Group rose 2.31%; and Sumitomo Mitsui Financial Group rose 1.63%.

The core logic behind bank shares strengthening against the trend lies in a fundamental change in Japan’s interest-rate environment. The Bank of Japan raised its policy rate from 0.75% to 1.0% last month—its first rate hike since December 2025—bringing Japan’s policy rate to the highest level in 31 years. Interest-rate normalization is widening banks’ net interest margins. Loan rates typically adjust faster than deposit rates, and this timing gap directly reflects growth in net interest income.

Mitsubishi UFJ Financial Group disclosed that for fiscal year 2025, its profit attributable to owners was 2.4272 trillion yen, with a return on equity of 11.3%. The company’s target for fiscal year 2026 is profit attributable to owners of 2.7 trillion yen. According to Bloomberg calculations, for every 0.25 percentage-point increase in rates, the incremental net interest income for Mitsubishi UFJ in the coming fiscal year would be about 180 billion yen. This quantified anchor provides a verifiable logic base for the market’s repricing of the banking sector’s valuations.

At the sector level, among the Tokyo Stock Exchange’s 33 industry sectors, banking, securities commodity futures, mining, precision machinery, and retail were relatively more resilient against the decline; electrical machinery, glass and earth products, non-ferrous metals, and construction performed weaker. There were clear signs of capital rotating from AI and semiconductor sectors toward value sectors such as financials.

How the Bank of Japan’s independence controversy affects market pricing expectations

In addition to geopolitical factors and sector rotation, domestic policy uncertainty in Japan is also an important background factor affecting the stock market on July 13.

In recent days, the Bank of Japan’s independence has drawn widespread market attention. In the draft of the “Basic Policies on Economic and Fiscal Management and Reform” (“Bone-thick policy”) released by the Japanese government on June 30, wording about “appropriate monetary policy operations to achieve a strong economy” was interpreted by the market as the government trying to pressure the Bank of Japan and restrain the pace of its rate hikes. This interpretation, layered with market concerns about the government aggressively expanding fiscal spending and issuing a large volume of government bonds, jointly sparked a wave of bond selling—dubbed the “Bone-thick shock.” At one point, the yield on Japan’s 10-year government bonds climbed to a level near a 30-year high.

In response to market doubts, Japan’s Finance Minister Ayumi Katayama and Economic and Fiscal Policy Minister Atsumi Shijo made back-to-back comments around July 11, emphasizing that the specific operations of financial policy should be decided autonomously by the Bank of Japan and that the government would not specify in advance the timing and magnitude of rate hikes or cuts. After that, the Japanese government initiated revisions to its economic policy guidelines, planning to add wording regarding central bank independence.

Even so, concerns about fiscal expansion and inflation risks were not fully eliminated. At its core, this dispute over central bank independence is a concentrated outbreak of the market’s lack of trust in the government’s attempt to cross the boundary of the central bank’s monetary policy independence. For stock market investors, the controversy means rising uncertainty about future monetary policy paths—neither fully ruling out further rate hikes nor ignoring potential political pressure the government could exert. This uncertainty itself suppresses the valuation levels of risk assets.

How institutions view the future direction of Japan’s stock market

Although Japan’s stock market experienced a notable pullback on July 13, major international institutions still hold a relatively positive view on the medium-term outlook for Japan’s stock market.

In a research report released on July 13, Citigroup upgraded its rating on Japanese stocks from “sell” to “buy.” The firm believes that as geopolitical risks ease and AI trading becomes crowded, there are signs of fund rotation. Investors’ focus will likely return to whether the upward trend in the second half will extend to other sectors. Citigroup maintained its year-end target for the Nikkei index at 90,000 points and its TOPIX target at 4,500 points.

Earlier, Bank of America had also raised its year-end target for Japan’s stock market, predicting that the Nikkei 225 still has about 15% upside, with a potential rise to 80,000 points by year-end. Bank of America said that expansion in artificial intelligence demand beyond expectations is the key factor supporting this view.

Citigroup further pointed out that the upward momentum for Japan’s stock market will come from upward revisions to technology stocks’ earnings forecasts, but that the current rise remains within a healthy range and does not reflect excessive speculation or a bubble. The firm believes that Japanese companies’ ability to pass costs through smoothly can drive improvements in earnings and profit margins; higher profit margins would then raise return on equity, supporting a re-rating of Japan’s stock valuations.

However, there are also cautious voices among institutional views. Some analysts noted that AI-related volatility may remain high in the next quarter. The risk of short-term concentration in Japanese equities is rising, and investors need to stay cautious. Comments made by Japan’s Finance Minister last Friday encouraging giant pension funds to increase investment in domestic assets provide support for financial stocks, but whether financial stocks can continue to attract capital still depends on the trajectory of interest rates and the pace at which companies’ earnings are realized.

Summary

On July 13, 2026, Japan’s stock market saw a notable pullback as multiple factors converged. The Nikkei 225 index closed down 1.92% at 67,242.73 points, and the TOPIX closed down 0.71% at 4,007.49 points.

The key market drivers for the day can be summarized in three main lines. First, the Middle East situation suddenly intensified; the Strait of Hormuz blockade pushed oil prices higher and increased concerns in the market about rising costs for Japanese companies and inflation pressure. Second, South Korea’s stock market triggered a circuit breaker due to a rout in semiconductor stocks; the spillover effect hit the Tokyo market, and semiconductor and AI-related weighted stocks faced concentrated profit-taking. Third, with Japan’s interest-rate normalization underway, the banking sector strengthened against the trend; Mitsubishi UFJ Financial Group’s market capitalization surpassed Toyota to become Japan’s stock king; and the trend of capital rotating from growth stocks to value stocks was further reinforced.

In addition, uncertainty about the monetary policy path reflected in the Bank of Japan’s independence controversy, as well as the signal differences between major international institutions raising their ratings for Japan’s stock market and keeping their target prices unchanged, are important variables affecting subsequent market direction. Japan’s stock market is currently caught in a contest among multiple forces: geopolitical risk, policy uncertainty, and structural valuation re-ratings.

FAQ

Q: What was the closing level of the Nikkei 225 index on July 13, 2026?

The Nikkei 225 index closed at 67,242.73 points, down 1,315.00 points from the previous trading day, a decline of 1.92%.

Q: How did the TOPIX perform that day?

The Tokyo Stock Price Index (TOPIX) closed at 4,007.49 points, down 28.59 points, a decline of 0.71%, with total trading volume of about 1.97558 billion shares.

Q: What were the main reasons Japan’s stock market fell that day?

It was mainly driven by three factors: the Middle East situation intensifying—leading to the Strait of Hormuz blockade and higher oil prices that raised concerns about corporate costs; South Korea’s stock market triggering a circuit breaker due to a rout in semiconductor stocks and the spillover effect hitting the Japanese market; and semiconductor and AI-related weighted stocks experiencing concentrated profit-taking.

Q: Which sectors performed relatively strongly that day?

The banking sector strengthened against the trend. Mitsubishi UFJ Financial Group set a record high during the trading session and surpassed Toyota with a market capitalization of about 42 trillion yen to become Japan’s stock king. Sumitomo Mitsui Financial Group also hit a new listing-era session high. Among the 33 industry sectors in the TOPIX, banking, securities commodity futures, mining, precision machinery, and retail were relatively more resilient against the decline.

Q: How do institutions view the outlook for Japan’s stock market going forward?

On July 13, Citigroup upgraded its rating for Japanese stocks from “sell” to “buy,” and kept its year-end target for the Nikkei index at 90,000 points. Earlier, Bank of America predicted that the Nikkei index could rise to 80,000 points by year-end. However, some institutions also cautioned that AI-related volatility may remain elevated and that the risk of short-term concentration could increase.