TOKYO, September 4 — Japan’s Nikkei 225 fell between 1.9 percent and 2.5 percent to around 64,011 on Friday, leading a broadly lower session across Asia as crude oil climbed past $100 a barrel for the first time since May and investors priced in a Federal Reserve rate rise. The drop was not a Japanese story so much as an energy one.
The U.S.-Iran conflict has entered its seventh month, and what investors initially treated as a temporary geopolitical premium has turned into structural energy inflation, threatening to keep utility, transport and food costs elevated through the second half of 2026. Japan and South Korea, as heavy industrial consumers, face the most immediate hit from expensive crude.
Wall Street sets the tone
Asian markets followed broadly negative cues from Wall Street overnight, having already ended mostly lower on Thursday. Surging crude and Treasury yields compounded concerns about inflation and the path of interest rates ahead of the Fed’s monetary policy meeting next week. CME Group’s FedWatch Tool put the odds of a quarter-point rise at 72.4 percent, up from 49.4 percent a week earlier.
The bond market did much of the damage. The U.S. 10-year Treasury yield neared 5 percent, prompting foreign capital flight and heavy equity liquidations across the region.
Tighter supply constraints arrived alongside hot economic data, with U.S. annual Producer Price Inflation accelerating sharply to 5.4 percent.
Chipmakers and exporters drag Tokyo down
In Tokyo, chipmakers and exporters led the decline, with intensifying bets on a Bank of Japan rate hike next week adding domestic pressure on top of the external ones. Hong Kong’s Hang Seng dropped 0.66 percent to 1.5 percent to around 24,817, its fourth consecutive negative session, as tech heavyweights and U.S. ADR listings buckled. China’s SSE Composite fell 1.20 percent as onshore selling pressure accelerated amid rising energy costs pushing domestic inflation up.
South Korea’s KOSPI dropped 2.5 percent, with tech giants Samsung and SK Hynix falling sharply amid macroeconomic strains and shifting AI architecture dynamics. Emerging Southeast Asian markets in Malaysia, Singapore and Indonesia declined between 0.3 percent and 2.4 percent, while currencies including the Thai baht and Indonesian rupiah weakened against the dollar as import bills soared.
The regional split is becoming clearer. Japan and South Korea absorb the crude shock through industry; Thailand and Indonesia absorb it through the public purse, as mounting domestic fuel subsidy costs squeeze fiscal headroom. Elsewhere in the first week of September, the U.S. jobs report and foreign trade data were the main economic news, the Canadian central bank announced its latest policy decision, Eurozone inflation data was the highlight in Europe, and the Reserve Bank of New Zealand’s interest rate decision drew attention in Asia.
The macroeconomic indicators point toward a higher-for-longer rate environment, leaving equity markets facing elevated volatility. Next week brings the Fed and the Bank of Japan in the same stretch.
For all the noise from Tehran and the oil pits, the salient point for Asian portfolios is whether Tokyo tightens into an energy shock — and what that does to the yen.
