Market Brief: Nikkei 225 Retraction Japanese equities faced a sharp correction on Friday, February 20, 2026, as the Nikkei 225 index closed at **56,825.70**, marking a decline of **642.13 points** or **1.12%**. The sell-off was triggered by a combination of escalating geopolitical risks and cooling sentiment in the global financial sector. Geopolitical Pressures Heightened tensions between the United States and Iran have become a primary driver of market volatility. Prediction markets currently place the probability of a U.S. military strike on Iran at approximately **60%** by late March. This uncertainty has pushed Brent crude oil prices toward the **$72** per barrel range, creating a dual headwind for Japan. As a major energy importer, the rising cost of fuel threatens corporate margins and consumer spending power. Sector Performance and Drags Sentiment was further dampened by a notable sell-off in U.S. private equity shares. Major listed asset managers have seen increased pressure as high-profile realizations and IPO activity remain uneven, causing a ripple effect across global financial stocks. On the Tokyo Stock Exchange, the downturn was broad-based. The Nikkei Volatility Index climbed **4.23%** to reach **29.07**, reflecting growing investor nervousness. While Mitsui Mining and Smelting gained **5.44%**, heavyweights like Seven & i Holdings fell **4.26%**, and the paper, pulp, and transport sectors faced significant losses. Macroeconomic Context The market is also recalibrating in the wake of recent political shifts and monetary policy expectations. Following the landslide election victory of the Liberal Democratic Party, the new administration is pursuing an expansionary fiscal agenda and a **$135 billion** monetary easing package. However, the Bank of Japan remains in a delicate position. After raising the policy rate to a 30-year high of **0.75%** in December, the central bank is balancing a resilient domestic economy against a weakening yen, which currently trades near **155.17** against the dollar. Key Indicators at a Glance * **Nikkei 225 Close:** 56,825.70 (**-1.12%**) * **Nikkei Volatility Index:** 29.07 (**+4.23%**) * **USD/JPY Exchange Rate:** 155.17 * **Brent Crude:** $71.99 per barrel * **Gold Futures:** $5,038.64 per ounce The current market environment is defined by a "flight to safety," with gold prices rising **0.83%** as investors hedge against Middle Eastern instability and potential supply chain disruptions. Short-term focus remains on the upcoming U.S. inflation data and potential diplomatic developments in the Persian Gulf.