Tokyo — Japan’s Nikkei Stock Average experienced its steepest daily decline on record Monday, plummeting 4,451.28 points, or 12.4%, to close at 31,458.42. This drop marks the second-largest percentage fall since the infamous Black Monday of October 1987, when the index fell by 14.9%.
The dramatic sell-off was driven by mounting fears of a U.S. recession and a stronger yen, which have spurred panic selling across global markets. The Nikkei has been on a downward trajectory since Thursday, following an unexpected interest rate hike by the Bank of Japan (BoJ) from 0.1% to 0.25%. The hike, coupled with indications of further increases, triggered a 3.5% drop on Thursday and a 5.8% decline on Friday, marking its second-worst daily performance.
Impact on Financial and Export Sectors
The financial sector bore the brunt of Monday’s market turmoil. Major Japanese banks saw significant declines: Mizuho Financial Group fell by 19.7%, Mitsubishi UFJ Financial Group by 17.8%, Resona Holdings by 19.5%, and Sumitomo Mitsui Financial Group by 15.5%. Regional banks also suffered, with Chiba Bank dropping 23.7% and Fukuoka Financial Group falling by 17.9%. Nomura Holdings, a leading brokerage firm, saw its shares decline by 18.6%.
Exporters were hit hard by the yen’s strength. Toyota’s stock fell by 13.7% as the yen appreciated to a seven-month high of 141 to the dollar. The yen’s rise, which followed a weaker-than-expected U.S. jobs report, heightened concerns about a potential U.S. recession and sparked debate about whether the Federal Reserve should have cut rates in July.
Market Reactions and Circuit Breakers
In response to the volatile trading conditions, the Osaka Securities Exchange temporarily halted trading in Nikkei 225 and Topix futures as circuit breakers were triggered. These measures are designed to prevent excessive market volatility and give investors time to stabilize their positions.
Zuhair Khan, senior fund manager at UBP Investments, attributed the stock market plunge to the yen’s rapid appreciation and the unwinding of speculative investments. “The yen’s excessive weakness is likely to reverse quickly,” Khan noted. Despite the current turmoil, he suggested that the decline could present a buying opportunity for Japanese institutions and pension funds.
Broader Regional Impact
The market downturn extended beyond Japan. Taiwan’s benchmark TAIEX index suffered an unprecedented drop of 8.4%, or 1,807.21 points, closing at 19,830.88. The decline was driven by concerns over a slowing economic recovery and delays in Nvidia’s AI chip shipments. Key chipmakers, such as Taiwan Semiconductor Manufacturing Co. and MediaTek, saw their shares fall by 9.75% and 9.08%, respectively. Suppliers like Foxconn and Quanta also experienced significant losses, nearing their daily downward limit.
South Korea’s KOSPI index also fell by 8.8%, reflecting broader regional market distress. Meanwhile, Singapore’s Straits Times Index and Australia’s All Ordinaries faced declines of over 4% and 3%, respectively.
Jason Lui, head of equity and derivative strategy for Asia-Pacific at BNP Paribas, commented on the broader market trend, stating, “The unwinding of the AI trade is evident across North Asia markets, including Japan, Korea, and Taiwan.”
The global financial landscape remains highly volatile as investors grapple with economic uncertainties and shifting monetary policies.
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