Tokyo, Japan — August 2, 2024 (REUTERS/Issei Kato)
Japan’s stock market endured its most significant single-day loss ever on Monday, amid a deepening global sell-off triggered by weak US jobs data.
The Nikkei 225 plummeted by 4,451 points, the largest point drop in its history, closing over 12% down for the day. This significant decline has pushed the index's total losses to 24% since early July, officially entering bear market territory, defined as a 20% fall from recent highs.
In response to the sharp declines, trading was temporarily halted in Japan and South Korea multiple times. Circuit breakers, mechanisms designed to pause trading during severe volatility and prevent panic selling, were activated several times in both Tokyo and Seoul.
On the previous Friday, the Nikkei had already fallen by 5.8%, marking its steepest daily drop since March 2020. Traders were anxious about the impact of a stronger yen on Japanese companies after the Bank of Japan (BOJ) indicated possible further interest rate hikes. A rising yen adversely affects exporters and companies with overseas earnings.
The rapid strengthening of the yen has led many market participants to unwind the yen carry trade, a popular strategy where investors borrow cheaply in yen, convert it to other currencies, and invest in higher-yielding assets. Last week, the yen surged nearly 5% against the US dollar. By Monday, it had gained an additional 2.2%, trading at 143.3 yen per dollar.
“This stronger yen set off a chain reaction, triggering a global unwinding of carry trades,” said Stephen Innes, managing partner at SPI Asset Management.
The market turmoil evolved into a “full-on avalanche,” driven by a surprisingly hawkish stance from the BOJ, China's slowing economic growth, and weak US tech earnings, Innes added.
Recently, the BOJ raised interest rates by 15 basis points to 0.25%, its second increase this year, and announced plans to reduce its bond purchases. Traders are bracing for additional rate hikes later this year as the BOJ aims to control inflation.
China's official manufacturing PMI fell in July, indicating ongoing weakness in factory activity.
In the US, Amazon (AMZN) reported lower-than-expected earnings for the second quarter and provided a disappointing outlook for the third quarter. Intel (INTC) also reported a $1.6 billion loss for the second quarter and announced plans to cut 15% of its workforce to reduce costs.
**Global Market Plunge**
Other Asia-Pacific markets also took a significant hit on Monday.
The Korea Exchange briefly halted trading in the benchmark Kospi index after it plummeted more than 8%.
Taiwan's Taiex experienced its worst day ever, closing down 8.4%.
Australia’s S&P/ASX 200 dropped by 3.6%. Meanwhile, Hong Kong’s Hang Seng Index and China’s Shanghai Composite fell by 2.6% and 1.2% respectively.
Asian stocks mirrored a sharp decline on Wall Street on Friday, where disappointing jobs data intensified fears of a weakening US economy. The Dow closed down 1.5%, the S&P 500 fell by 1.8%, and the Nasdaq Composite decreased by 2.4%, with the Nasdaq entering correction territory, down more than 10% from its recent high on July 10.
Fear and Greed index, which gauges market sentiment, has dropped to a “fear” level of 27.
Other markets are also showing signs of nervousness. On Friday, oil prices hit their lowest levels since January. Both Brent crude futures and US WTI crude fell by more than 3%.
Despite hovering around eight-month lows, oil prices might see some stability for now, despite threats of retaliatory actions in the Middle East, according to Tom Kloza, global head of energy analysis at Oil Price Information Service.
“Since the Hamas actions on October 7 last year, there has been general apathy towards fears of a broader regional conflict in the Middle East,” he said.
“It would likely take a direct attack on Iranian soil to significantly drive up prices due to geopolitical reasons,” Kloza added. “It will take something quite dramatic to cause a surge in oil prices, and there is a strong desire in Washington to do whatever it takes to keep gasoline prices under control,” he said.
Regarding domestic US gasoline prices, Kloza mentioned that a hurricane in the Gulf of Mexico could trigger a price hike. Hurricane Debby has strengthened to a Category 1 hurricane as it approaches landfall in Florida.
This story has been updated with additional information.
Seoul bureau, and Taipei bureau contributed to this report.