Concerns over a potential US recession have sparked an intensifying global sell-off, as evidenced by the largest single-day loss in history for Japan’s benchmark Nikkei 225 stock index.
On Monday, the Nikkei 225 plunged 12.4%, closing at 31,341.29. This dramatic fall of 4,451.28 points marks the worst day for the index since the infamous “Black Monday” of 1987. The Tokyo Stock Price Index (Topix) mirrored this downturn, dropping 12.23%.
This substantial decline followed Friday’s significant losses, in which the Nikkei fell by 5.8% and the Topix by over 6%. The recent sell-off has erased all of the Nikkei’s gains for the year, putting it into negative territory year-to-date.
Recession fears in the US, exacerbated by disappointing US job data released on Friday, primarily drove the steep decline. The weak employment report intensified concerns about the US economy’s health, prompting a massive sell-off in global markets.
“The feared scenario here is that higher unemployment will constrain spending and further restrain hiring, incomes, and economic activity, leading to a recession,” said Tan Boon Heng of Mizuho Bank in Singapore.
Adding to the market’s woes, the yen surged to 142.67 against the US dollar on Monday, up from 146.45 on Friday. This level has not been seen since early January, and a stronger yen typically hampers Japanese exporters, diminishing their financial results expectations.
The yen’s appreciation against the dollar and the declining expectations for exporters’ positive financial results also weighed down the market, according to IwaiCosmo Securities.
Recent changes in interest rates have also played a significant role. Last week, the Bank of Japan raised interest rates for the second time in 17 years amidst expectations that the US Federal Reserve will cut rates in September. These contrasting monetary policies have added to market volatility.
Globally, the impact of US economic concerns is evident. Hong Kong’s Hang Seng index dropped by 0.2%, Australia’s S&P/ASX 200 fell by 12.8%, and the MSCI World index of Asia-Pacific shares outside Japan declined by 4.2%.
The unprecedented drop in Japan’s Nikkei 225 underscores the heightened anxiety over a potential US recession and its global implications. As markets remain volatile, investors are closely monitoring economic indicators and central bank actions to navigate this turbulent period. Understanding these dynamics is crucial for making informed investment decisions in such an unpredictable environment.