A Nomura Securities strategist says the excessive correlation between oil and Japanese equities is likely to run its course, and points to the need to compare WTI trends, ceasefire developments and investment trust flows in assessing the market ahead.
Recent market conditions have seen an extreme correlation between rising oil prices and movements in Japanese equities, but one view now places greater emphasis on the broader outlook based on an easing of tensions involving Iran. Since 2 March, rising oil prices and declines in Nikkei futures have moved in near mirror-image correlation. One analysis estimates that Nikkei futures would be around ¥54,500 if WTI were approximately $87.5, while also examining the impact on corporate earnings.
Meanwhile, the impact of higher oil prices in pushing down corporate EPS is considered limited. Even if WTI rises from $65 to $88, the outlook for earnings growth in fiscal 2026 would not deteriorate significantly, and the earnings revision index could recover from June onward, according to one view. Inflows into domestic equity investment trusts were reported at approximately ¥40 billion per day from 6 to 11 March, suggesting strong appetite for buying on dips.
As a risk scenario, if the probability of a ceasefire is estimated at around 50% through the end of April, the Nikkei is expected to be around ¥55,000–¥56,000. If the probability of a ceasefire is 0%, however, the Nikkei could fall to approximately ¥51,500. Conversely, if the probability reaches 100%, the Nikkei could recover to approximately ¥58,500. The WTI futures curve was also described as remaining in backwardation. In addition, inquiries about specific information, including the locations of oil fields and vessels and historical patterns, have increased, but one view holds that the focus of information is gradually shifting toward indicators for the market as a whole.