(Adds comments, details and updates stock prices)
By Junko Fujita and Satoshi Sugiyama
TOKYO, March 23 (Reuters) - Japan's stocks and bonds
sank to multi-months lows on Monday as an escalation in the
Middle East war stoked inflation fears and concerns over an
economic slowdown.
The Nikkei slumped as much as 5% earlier in the
session, wiping out all its gains for the year. The Nikkei had
surged to a record high of 59,332.43 last month and was on track
to breach the 60,000 mark, fuelled by expectations that Prime
Minister Sanae Takaichi's stimulus plan would accelerate
corporate growth.
The index traded more than 14% lower from the record high on
Monday, as the Strait of Hormuz, a vital link to Japan's oil
supply, remains closed. The country gets around 90% of its oil
shipments via the passage.
"Local firms may have to lower their outlook for the next
fiscal year due to the surging oil prices from the prolonged
Middle East war," Kazuaki Shimada, chief strategist at IwaiCosmo
Securities.
"The rising oil prices would also slow down and hurt the
economy, which would also affect corporate earnings."
The Nikkei was last down 3.5% at 51,514.78, as of
0147 GMT, and the broader Topix fell 2.86% to 3,504.78.
The 10-year Japanese government bond yield
jumped as 6 basis points (bps) to 2.320%, its highest point
since January 21.
Bond yields move inversely to prices.
Iran said on Sunday it would strike the energy and water
systems of its Gulf neighbours if U.S. President Donald Trump
followed through with a threat to hit Iran's electricity grid in
48 hours, extinguishing any hope of an early end to the war, now
in its fourth week.
Trump said on Sunday that Iran had 48 hours to open the
vital strait, which is effectively closed for most vessels.
Inflation may add pressure on global central banks to raise
interest rates, which is negative to equities, said Shuutarou
Yasuda, a market analyst at Tokai Tokyo Intelligence.
The Bank of Japan held its interest rates steady on Thursday
but kept the possibility of an early rate hike alive by warning
surging oil prices could exacerbate inflationary pressures.
Chip-related shares led the Nikkei's decline, with Advantest ( ADTTF )
and Tokyo Electron ( TOELF ) falling 5.8% and 3.1%,
respectively.
Of more than 1,600 stocks trading on the Tokyo Stock
Exchange's prime market, 94% declined, and 4% advanced, and 1%
traded flat.