Japan weighs oil risks and equity resilience

Japan will seek to deepen strategic cooperation with Asian neighbors to secure crude oil supplies vital for regional manufacturing, Economy Minister Ryosei Akazawa said in an NHK broadcast on April 12. The initiative is designed to protect production of essential petroleum-based goods, including critical medical equipment, that are made across Asia and exported to Japan.

Akazawa stated that Japan maintains "ample" national oil reserves, but said the main challenge has shifted from sheer volume of crude to the complexity of distribution networks. With many goods produced in Asia and shipped to Japan, he emphasized that securing the crude needed to sustain these supply chains is critical for the domestic economy.

To address emerging bottlenecks, the Japanese government has started deploying artificial intelligence tools to monitor the intricate energy logistics system. These tools are intended to pinpoint constraints within regional supply chains and help prioritize fixes until the broader energy situation stabilizes.

The move reflects concern that traditional supply chain management is no longer sufficient for the volatility affecting maritime routes that connect Middle Eastern producers with Asian factories. Japan’s reliance on these Asian production centers leaves it particularly exposed to disruptions in the flow of raw energy.

Akazawa warned that Japan is bracing for a "prolonged period" of elevated energy costs. He said oil prices are unlikely to return to the $60–$70 per barrel range in the near future, signaling that policymakers view higher prices as a more durable feature of the global energy landscape.

Tokyo plans to keep gasoline subsidies in place for now to cushion households, but Akazawa stressed that the government has "no intention of maintaining them indefinitely." His comments point to a gradual pivot toward fiscal normalization as the economy adjusts to structurally more expensive energy.

Investors remain focused on how Japan’s manufacturing giants will manage higher input costs while the reopening of the Strait of Hormuz remains unresolved after the collapse of Islamabad talks. Persistent constraints on this key shipping lane are a central risk to Japan’s energy security strategy.

A new strategy report from BofA Global Research, published the same day, argues that Japanese equity markets may have found a definitive bottom following the announcement of a two-week ceasefire between the U.S. and Iran. The report says the temporary halt in hostilities makes a recovery more likely than an extended correction.

BofA notes that the TOPIX price-to-earnings ratio has remained relatively steady despite the conflict, helped by stability in distant crude oil futures even as near-maturity WTI prices surged. This pattern suggests the market has been pricing in a short-term disruption rather than a permanent structural shift in energy costs.

The report highlights that Japanese equities have historically weathered brief periods of high energy prices, and argues that if the current disruption ends quickly, the hit to corporate earnings will likely be limited. However, it warns that a long-term disruption around the Strait of Hormuz would more seriously affect Japan’s industrial and manufacturing sectors.

BofA identifies verification of a durable peace and the safe reopening of the Strait of Hormuz as the next critical steps for investors. The bank calls the reopening of the strait the ultimate litmus test for a sustained market recovery.

The strategy currently favors high-quality Japanese stocks that have already priced in significant "war premiums." BofA suggests that as long as the ceasefire holds and de-mining efforts in the Gulf make progress, the path of least resistance for the Nikkei 225 (NKY) and TOPIX is likely upward, while cautioning that this depends on diplomatic efforts in Pakistan leading to a tangible reopening of maritime trade.