For the fourth straight trading session the Japanese stock market closed lower on Friday, on the back of an overnight surge in oil prices.
Crude oil futures jumped $5.62, (4.9%), to $121.18 a barrel - the highest since June 6.
The benchmark Nikkei 225 Index closed down 86.17 points, (0.7%), at a four-and-a-half-month low of 12,666.04. The broader Topix Index of all First Section Issues shed 8.11 points, (0.7%). to finish at 1,216.42.
In the late Asian session, crude for October delivery was up 36 cents to $121.54 a barrel by around 3:38 am. This was after the jump to $121.18 on the New York Mercantile Exchange.
Meanwhile, the Reuters/Jeffries CRB Index of 19 commodities soared 3.7%, set for the biggest weekly gain in 33 years.
The ongoing concerns about the US financial sector and the depreciation of the dollar increased the appeal of investing in commodities as a hedge against inflation.
Kazuki Miyazawa, market analyst at Daiwa Securities SMBC, said: “Shares may rebound after oil prices boosted US stocks, shrugging off the negative impact of higher oil prices.”
“But, the upside may be limited as there haven't been any changes to the fears about the US financial system and uncertainty about slowing economies,” he added.
A further contributory factor of the significance of a stronger yen, weighed on exporters and banks.
In the currency market, the US dollar traded in the lower 109-yen levels in late Tokyo deals, compared to mid 108-yen levels during early trade. The dollar closed Thursday's session in the upper 108-yen zone.
At 6:16 am, Friday, the dollar was trading at $1.4904 per euro after dropping 1%, on Thursday, and touching $1.4903 - its weakest level since August 14. The yen was at 108.43 per dollar, after climbing 1.3%. Japan's currency traded at 161.60 per euro, following a 0.3% increase. It touched 160.20, its strongest level since May 13.
With the combination of both high crude oil and raw material prices, Japan's import bills are being pushed up to record levels, in turn slashing Japan's trade surplus by nearly 90%, from the same period last year.
Japan currently imports almost all of its oil and the bulk of the raw materials it needs to supply its factories.
Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute, said: “Imports are surging in value, which shows that high crude oil prices continue to hurt corporate revenues, which are leading to an outflow of income from Japan.”
In July alone exports rose 8.1%, from a year earlier, topping a median market forecast of a 5.6% rise. This was a continuation on from a drop of 1.8% in June - the first annual decline that Japanese Exports had seen in nearly five years.