Japan’s Nikkei stock market has crashed by nearly 4%, losing more than 3000 points. The Japanese stock market lost just shy of $300 billion. According to Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Lab, “Selling is expected to spread across Japanese technology shares, while funds may rotate into defensive sectors.” Let’s discuss what’s driving Japan’s ongoing market crash. Will the Nikkei recover soon?

What’s Driving Japan’s Market Crash?

The crash could be due to the recent re-escalation in military operations in the Middle East. Crude oil prices surged after Iran launched several missiles towards Israel. The development has led to worries about energy shortages. Traders are also pricing in increased chances of the Bank of Japan hiking interest rates.

High jobs data from the US may have also played a hand in the Nikkei’s dip. Inflation in the US came in higher than expected for April. Add the high jobs figures, and the chances of an interest rate cut from the Federal Reserve falls significantly.

Japan’s stock market dip could also be fueled by investors questioning the sustainability of the ongoing AI surge. The technology-heavy Nikkei 225 Stock Average fell by nearly 4% earlier today. The dip market the steepest decline since March 30 of this year.

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Saxo chief investment strategist Charu Chanana also believes that investors are repositioning their capital due to fears of AI-stocks being overvalued.

The South Korean stock market also faced a steep crash. The KOSPI was halted for nearly 20 minutes after the dip triggered a circuit breaker.

Will The Market Recover?

President Trump recently stated that Israeli Prime Minister Benjamin Netanyahu has no choice but to accept an Iran deal. The cryptocurrency market saw a recovery after President Trump’s remarks. A similar pattern could emerge for the Nikkei and other Asian stock markets.