The Nikkei 225 Index pulled back slightly on Monday, paring back some of the gains made in the past few weeks as energy prices rebounded following Donald Trump’s plan to blockade the Strait of Hormuz. It retreated slightly to ¥56,400 from last week’s high of ¥57,405.

Japanese stocks retreat as crude oil jumps

The Nikkei Index pulled back after the weekend talks between the US and Iran in Pakistan failed to achieve the desired outcome. In a statement, Vice President JD Vance, who led the talks, said that the two sides failed to reach an agreement as Iran rejected some of the proposals from his delegation.

President Donald Trump then announced that the US would blockade the Strait of Hormuz, where over 20% of all oil passes through. He wants to prevent Iran from making money by collecting tolls from tankers passing through the Strait.

As a result, crude oil prices resumed the uptrend, with the main benchmarks rising by over 7%. The West Texas Intermediate (WTI) rose to $104.3, while Brent, the global benchmark, rose to $101. Natural gas jumped by over 1.1%.

Analysts believe that a complete embargo on the Strait of Hormuz will push crucial oil much higher in the long term, with Goldman Sachs predicting that it may get to over $130 in the near term. Odds of oil rising to that level jumped on popular prediction marketplaces like Polymarket and Kalshi.

Japan’s economy would be hurt greatly because the country does not have natural resources and relies on crude oil and natural gas from the Middle East. 

As such, the hope is that Trump will reverse the move as he has always done whenever oil prices soared. For example, he reversed the threat to bomb Iranian infrastructure, like bridges and power plants and announced a two-week ceasefire last week.

Most Japanese companies were in the red on Monday, with NEC, Mitsui Mining & Smelting, Mitsubishi Motors, Yokohama Rubber, Osaka Gas, and Shiseido being the top laggards. The other top losers were companies like Pacific Metals, Mitsui Engineering, and Softbank.

On the other hand, companies like Dentsu, Amada Holdings, Yaskawa Electric, Murata Manufacturing, and Komatsu were among the top gainers.

Looking ahead, the index will react to the upcoming earnings season, which will start later today with companies like Goldman Sachs, JPMorgan, Morgan Stanley, and Citigroup releasing their numbers. 

The most notable Japanese companies, like Hitachi, Fujitsu, Canon, Chugai Pharma, Nomura, Mitsubishi Electric, and Komatsu, will release their numbers later this month.

Nikkei 225 Index technical analysis

Ni225 Index chart | Source: TradingView  The daily chart shows that the Nikkei 225 Index bottomed at ¥50,395 on March 30th and then bounced back to a high of ¥57,375 last week. 

It then pulled back to ¥56,390 on Monday as energy prices rebounded. Still, the decline was less severe than one would expect, a sign that investors expect Trump to make another announcement in his bid to lower crude oil prices.

On the positive side, the index remains slightly above the Major S&R Pivot Point of the Murrey Math Lines tool. It has also remained slightly above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls are in control today.

The Money Flow Index has jumped and crossed the neutral point at 50. Therefore, the most likely scenario is where it resumes the uptrend and hits the psychological level at ¥60,000. 

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