By Ankur Banerjee
SINGAPORE, March 19 (Reuters) – Stocks slid and oil prices rose sharply on Thursday after a major escalation in the U.S. and Israel’s war with Iran rattled investors, while the Bank of Japan became the latest central bank to warn about the impact of energy costs on inflation.
The yen
Focus remains on the war in the Middle East as investors come to the realisation that the conflict is shaping up to be a prolonged one, stoking the risk of stagflation – weak growth coupled with high inflation.
U.S. President Donald Trump said an angry Israel “violently lashed out” and attacked Iran’s major gas field, prompting a threat by Iran to attack oil and gas targets across the Gulf, while it fired missiles at Qatar and Saudi Arabia.
The hits to energy infrastructure sent shockwaves across markets as U.S. crude futures extended gains above $97 per barrel. Natural gas surged 3%, while Brent futures rose to $111.87 a barrel, up 4% on the day. [O/R]
In stocks, Japan’s Nikkei was down over 3%, while South Korean equities fell 2.8%. MSCI’s broadest index of Asia-Pacific shares outside Japan fell more than 2.5%. European futures were down more than 1.5%.
“This latest escalation feels like a turning point for markets because the conflict is no longer just about military headlines or Strait of Hormuz closure,” said Charu Chanana, chief investment strategist at Saxo in Singapore.
“It is now hitting the plumbing of the global energy system. What is unsettling markets now is the growing stagflation risk… It means this is no longer just a geopolitical story but a macro one.”
The dollar strengthened across the board, also buoyed by the Federal Reserve predicting just one more cut this year as the central bank left rates unchanged on Wednesday. Traders though are no longer fully pricing in any easing in 2026.
The dollar index, which measures the U.S. currency against six other units, is up 2.5% since the war broke out at the end of February as investors look to the greenback as the haven of choice. The index was last at 100.15, slightly lower after a 0.7% rise on Wednesday.
The two-year U.S. Treasury yield, which typically reflects near-term rate expectations, was up roughly 6 basis points in Asia to 3.8051%, its highest since August 2025.
ECB AND BOE UP NEXT
In a week filled with policy meetings across the globe, investors have been parsing through comments to gauge the impact of the war, with the European Central Bank and Bank of England due later in the day.
As widely expected, the Bank of Japan left unchanged its short-term policy rate at 0.75% but joined the U.S. Federal Reserve and Bank of Canada in striking a cautious tone about the war and pricing pressures.
BOJ Governor Kazuo Ueda, at his post-meeting briefing, will aim to frame the balance between the need to support a shock-hit economy and avoid being behind the curve on inflation in the face of a persistently weak yen.
The yen was last at 159.71 per dollar, having dropped over 2% against the dollar this month.
Fred Neumann, chief Asia economist at HSBC, said the path ahead for the BOJ is narrowing, noting rising price pressures, from soaring energy costs and a weaker currency, are pointing to prompt and decisive tightening.
“Governor Ueda will likely want to keep his options open for the coming months. As elsewhere, monetary officials will want to play for time, seeing out the conflict in the Middle East evolves in the coming weeks and its impact on global energy and financial markets.”
(Reporting by Ankur Banerjee in Singapore; Editing by Christopher Cushing)
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