Japan Stocks Experience Sharpest Drop Since Pandemic Amid Global Market Concerns
Japanese stocks faced a significant downturn on Friday, with the Nikkei 225 plunging 5.8%, marking the index’s largest single-day drop since March 2020. The decline, driven by concerns over the US economy and expectations of further interest rate hikes by the Bank of Japan (BOJ), contributed to a global market selloff.
The Nikkei’s fall extended a downward trend that began Thursday when it lost 2.5%, reaching its lowest level since January. European markets also opened weaker, with the Stoxx Europe 600 index down 1.4%, Germany’s DAX falling 1.2%, and France’s CAC 40 dipping 0.6%. London’s FTSE 100 saw a 0.4% decline. US futures pointed to another challenging day for Wall Street, with S&P 500 futures down 0.9%.
This turbulence follows the BOJ’s decision on Wednesday to raise interest rates by 15 basis points to 0.25%, the second hike this year, along with plans to reduce bond purchases. Ken Cheung, a director of foreign exchange strategy at Mizuho Securities, noted the BOJ’s hawkish stance, indicating more rate hikes could be forthcoming to manage inflation risks.
The yen strengthened against the dollar, gaining 0.3% to 148.9, continuing a trend that has seen the dollar decline by over 4% against the yen since mid-July. This currency movement has raised concerns among Japanese exporters, as noted by Frank Benzimra of Societe Generale, who warned that increased yen volatility could jeopardize the longstanding bull market in Japanese equities.
Despite recent corrections, including a 12% drop in the Nikkei since July 12, analysts from Citi maintain a positive outlook for Japanese stocks in the long term. They highlight a strengthening wage-price dynamic and rising inflation as potential drivers of economic recovery.
Other Asian markets also saw significant declines on Friday. South Korea’s Kospi fell 3.7%, Australia’s S&P/ASX 200 dropped 2.1%, Hong Kong’s Hang Seng Index decreased by 2.1%, and China’s Shanghai Composite was down 0.9%.
In the US, major indices also suffered losses. The Dow Jones Industrial Average fell 1.2%, the S&P 500 lost 1.4%, and the Nasdaq Composite dropped 2.3%. The market reacted to data indicating a weakening US economy, with jobless claims reaching their highest level since last August and ongoing claims hitting a peak not seen since November 2021. Analysts at ANZ noted that weak manufacturing data has solidified expectations for rate cuts by the Federal Reserve, with potential reductions anticipated in September.
