Japan stocks, bonds fall as oil shock weighs; BOJ comments in focus

By Junko Fujita

TOKYO, March 19 (Reuters) - Japanese stocks and bonds fell on Thursday and the yen remained fragile as investors weighed the economic impact of the prolonged Middle East conflict.

Shares extended losses to close lower following the Bank of Japan's as-expected decision to keep its key rate unchanged, as traders grew cautious ahead of a Japanese trading holiday and a meeting between Prime Minister Sanae Takaichi and U.S. President Donald Trump. Attention also shifted to a post-close speech by BOJ Governor Kazuo Ueda.

The blue-chip Nikkei plunged 3.4% to close at 53,372.53. The broader Topix slid roughly 3% to 3,609.40.

The benchmark 10-year Japanese government bond (JGB) yield rose 4.5 basis points (bps) to 2.260% as the yen traded near a 20-month low against the dollar.

"Investors wanted to reduce positions ahead of a three-day weekend as they weigh risks from the war in the Middle East," said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities.

All 33 industry sub-indexes on the Tokyo Stock Exchange fell, with chip and AI-related stocks weighing on the Nikkei. Advantest (ADTTF) and Tokyo Electron (TOELF) dropped 4.6% and 2.4%, respectively, while SoftBank Group closed 5.1% lower.

Oil prices settled higher on Wednesday and climbed further in extended trade after Iran attacked several energy facilities across the Middle East following a strike on its South Pars gas field, a major escalation in its war with the U.S. and Israel.

At the end of its two-day meeting, the BOJ warned of the impact that rising oil costs could have on underlying inflation and the nation's economy.

"If markets see the Bank of Japan as hesitant to raise rates, yen weakness could accelerate, making foreign exchange developments a key factor in determining the timing of the next rate hike," said Saisuke Sakai, senior economist at Mizuho Research & Technologies.

The yen was up 0.1% at 159.67 after reaching 159.905 in the previous session, the weakest point since July 2024.

(Reporting by Junko Fujita; Editing by Sherry Jacob-Phillips and Kevin Buckland)