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Japan’s benchmark index, the Nikkei 225, recorded its biggest one-day loss since 1987 on Monday, August 5. The index fell 12.4% compared to Friday evening as investor confidence waned due to the rise in the yen, tighter monetary policy and the worsening economic outlook in the US.
Japanese stocks have been on a downward spiral since Thursday, a day after the Bank of Japan aggressively raised its key interest rate from 0.1 to 0.25% and said it was open to further hikes this year.
According to the Japanese financial services provider Nomura, foreign investors are not selling Japanese shares for reasons specific to Japan but out of concern that the USA could be heading for a recession.
According to market observers, the yen’s appreciation is also a reason for the sell-off. On Monday, the yen rose to a seven-month high against the dollar, to 141 points. The Japanese currency had already appreciated somewhat on Friday, driven by the weaker-than-expected US labour market report for July, which fuelled fears of recession.
Other Asian markets also slumped on August 5. India’s Sensex slumped by over 2% on Monday, Singapore’s Straits Times Index lost 4.8%, Vietnam’s VN Index fell by around 4% and South Korea’s Kospi Index plummeted by 8.8%.
Largest single-day rise a day later
Meanwhile, the Nikkei 225 surged again only a day later, gaining 10.2%, the biggest single-day increase since 1990.
Nikkei Asia quotes Ryota Abe, Asia economist at Sumitomo Mitsui Banking Corporation in Singapore, saying that “easing concerns over the US economy and expectations of massive rate cuts by the Fed have reassured market participants today”. The overnight developments had corrected the dollar-yen exchange rate and helped the Nikkei index to trim some losses.
“The big market moves were not all due to the weak US data. The unwinding of the huge yen carry trade means that the biggest moves have been in Japan, and these moves are often exaggerated when they occur in August. If we are right and the US slowdown does not turn into a recession, we can expect markets to stabilise and recover,” commented Steven Bell, Chief Economist, EMEA, at Columbia Threadneedle Investments.
