Nikkei 225 closes down 0.27% at 53,603.65; South Korea's KOSPI closes down 3.22% at 5,460.40.

Asian equity markets experienced significant volatility on March 23, 2026, driven by escalating geopolitical tensions in the Middle East and surging energy costs. The Nikkei 225 initially plunged more than 5%, falling below the 52,000 level, before closing down 0.27% at 53,603.65. Similarly, South Korea's KOSPI dropped 5% intraday, triggering a circuit breaker, and ultimately settled 3.22% lower at 5,460.40.

The sell-off was primarily fueled by the U.S.-Iran conflict, which began in late February and intensified following President Trump's ultimatum regarding the Strait of Hormuz. Brent crude prices surged over 50% since the conflict's onset, briefly exceeding $118 per barrel, creating a crisis for Japan, which imports over 90% of its oil from the Middle East. This energy shock exacerbated inflationary pressures and disrupted supply chains, leading to a sharp revision in corporate profit expectations.

Foreign capital outflows further accelerated the decline. Overseas investors net sold approximately ¥491 billion in Japanese equities in the week ending March 13, ending a nine-week buying streak. Additionally, the Bank of Japan's cautious stance on rate hikes, citing oil-driven inflation risks, weakened the appeal of yen-denominated assets. Regional panic spillover from South Korea's market halt also contributed to the broader Asian downturn.

While the Japanese government announced plans to utilize ¥800 billion in reserves to subsidize gasoline prices, analysts warn these measures offer only temporary relief until tanker traffic through the Strait of Hormuz resumes. Market attention now focuses on potential emergency policy adjustments by the Bank of Japan and the efficacy of fiscal interventions.