Double Setback Again! Why Are Japanese and South Korean Stock Markets the Biggest "Victims" Amid US-Iran Tensions?

On Monday, Asian-Pacific stock markets all declined as threats from the US and Iran escalated hostile actions, causing ongoing concerns over rising tensions in the Middle East. The stock markets in Japan and South Korea once again became the hardest-hit areas of selling.

The Korea KOSPI index opened down 3.5%, with the decline initially expanding to over 6%. At the time of writing, it was down 4.71%, at 5,457.13 points.

After the KOSPI 200 futures dropped 5%, the Korea Exchange triggered the KOSPI index circuit breaker, pausing trading for 5 minutes.

In terms of heavyweight stocks, SK Hynix’s share price fell more than 5%; Samsung Electronics and Hyundai Motor both declined nearly 5%.

The Nikkei 225 index opened down 1.68%, with an intraday drop of over 2,600 points. At the time of writing, it was down 3.35%, at 51,582.23 points.

The Japan Topix Growth Market 250 futures triggered a circuit breaker, and trading resumed at 9:40 AM local time.

Other stock markets also saw significant declines. At the time of writing, Australia’s benchmark S&P/ASX 200 index fell nearly 1%, and the Hang Seng Index dropped over 3%.

Escalation of US-Iran Confrontation

Last Saturday, U.S. President Trump threatened that if Iran does not fully reopen the Strait of Hormuz within 48 hours, he will “destroy” Iran’s power grid. This “ultimatum” was met with a strong response from Iran.

According to CCTV News, on March 21, local time, President Trump posted on social media platform “Real Social” that if Iran fails to fully open the Strait of Hormuz within 48 hours without threats, the U.S. will strike and completely destroy Iran’s power plants, starting with the largest one.

Early morning on March 22, Iran’s armed forces’ Hatam-3 Central Command warned that, based on previous warnings, if Iran’s fuel and energy infrastructure are attacked, the U.S. and its allies will target all energy infrastructure, IT systems, and seawater desalination facilities in the region.

Additionally, Iran’s Islamic Parliament Speaker, Ali Larijani, posted on social media that if Iran’s power plants, energy, and oil facilities are attacked, all such targets in the region will be considered legitimate targets and will be irreversibly destroyed, with long-term oil price increases expected.

Why Are Japan and South Korea’s Stock Markets the First to React?

In this US-Iran conflict, Japan and South Korea’s stock markets have undoubtedly become the biggest “victims.” Whenever there are signs of escalation in US-Iran tensions, the sell-offs in Japan and South Korea are the most intense.

Analysts believe the core reason is that both Japan and South Korea are major importers of oil and natural gas, with high energy imports dependent on the Strait of Hormuz. Tensions in the Middle East cause oil prices to soar, sharply increasing energy costs for these countries and raising concerns over imported inflation.

Data shows that about 90% of Japan’s oil imports come from the Middle East, and roughly 70% of South Korea’s crude oil imports are from the Middle East.

Goldman Sachs estimates that if the disruption of oil transportation through the Strait of Hormuz continues for 60 days, Japan’s economy could experience a temporary contraction. This risk is closely monitored by the Bank of Japan.

Citi recently forecasted that, given the worrying geopolitical situation in the Middle East, if oil prices remain high, South Korea’s GDP growth rate in 2026 could decrease by nearly 0.5 percentage points.

Another key reason for the strong reaction of Japan and South Korea’s stock markets is that both markets are highly concentrated in energy and supply chain-sensitive leading sectors.

Some analysts say that the shocks experienced by these markets are related both to the short-term energy landscape disruptions and to specific characteristics of these markets. For example, both Japan and South Korea have a high proportion of international capital. When global geopolitical risks rise, international investors tend to reduce their risk exposure in these markets.

Additionally, both markets have a high weight of cyclical sectors, such as Japan’s automotive, machinery, and chemical industries, and South Korea’s semiconductors, shipbuilding, and petrochemical industries. These sectors are very sensitive to energy prices and global trade.

Since the outbreak of the US-Iran conflict, both Japan and South Korea have taken measures to mitigate the impact of potential oil supply disruptions on markets and the overall economy, such as Japan releasing record oil reserves and South Korea reactivating the “oil price cap system” after 30 years.

According to the latest reports, Japan plans to use about 800 billion yen from its budget reserves to curb gasoline prices.

On March 22, South Korea’s Finance Minister, Choo Kyung-ho, called for proactive policy measures at a cross-departmental meeting on the Middle East crisis, preparing for a prolonged crisis. Additionally, the ruling party spokesperson announced that South Korea will draft a supplementary budget of approximately 25 trillion won.

(Source: Cailian Press)