The escalation of the Iran conflict heightens risk aversion, leading to the largest foreign sell-off of Japanese stocks in eighteen months!

``` Foreign Capital is Accelerating Its Withdrawal from Japanese Stocks as the Impact of the Iran Conflict on Asia's Second Largest Economy Becomes Increasingly Apparent. Both the Nikkei 225 and the TOPIX Index fell by more than 11% in March, marking their worst monthly performance since 2008. The prior momentum that led the world abruptly ended. According to data from Japan Exchange Group, in the week ending March 27, overseas investors were net sellers of about 1.51 trillion yen (about $9.5 billion) in Japanese cash equities. This marks the third consecutive week of net selling, and the largest weekly net sell since September 2024. Over 90% of Japan's oil is imported from the Middle East, making its economy highly exposed to oil price shocks. On Thursday, Trump stated that in the next two to three weeks, "extremely severe" strikes would be carried out against Iran, causing oil prices to rise and the Nikkei index to plunge by 2.4%. From Global Leader to Fall from Grace The sharp reversal in the Japanese stock market caught the market off guard. From January to February this year, optimistic expectations for Sanae Takaichi’s fiscal stimulus plan led Japanese stocks to a strong performance, outpacing the S&P 500 and other major indices. However, since the outbreak of the Iran conflict, the Nikkei Index has lagged behind U.S. benchmark indices by about 6 percentage points, with previous excess returns quickly eroded. In a report, stock analyst Pelham Smithers pointed out, "From the perspective of the Japanese stock market, the timing of the Iran war could hardly be worse." He noted that even before the rise in oil prices, Japan was already deeply mired in a ‘cost of living crisis,’ and the combination of ‘stock market gains with a flatlining economy’ has made stock assets accumulate significant downside vulnerabilities. Energy Dependence Becomes a Fatal Weakness Structural dependence on energy is at the core of Japan's current pressure. Over 90% of Japan's oil imports come from the Middle East. Any escalation in the Strait of Hormuz situation would directly drive up import costs and suppress corporate profit expectations. Brent oil prices have fluctuated sharply with tensions in the Middle East, impacting the Japanese economy through multiple channels including energy costs, profit expectations, and consumer confidence. Against this backdrop, foreign investors’ risk appetite for Japanese stocks has clearly cooled, and the macro narratives that previously supported buying are now being reassessed. Risk Warning and Disclaimer The market has risks, and investment needs to be cautious. This article does not constitute individual investment advice, nor does it take into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk. ```