In a dramatic display of market volatility, Japan’s Nikkei 225 index plunged by 12.4% on Monday, highlighting broader global financial market unease. This sharp decline follows an already steep drop of 5.8% on Friday, marking the Nikkei’s worst two-day loss in history. The most significant single-day drop for the index occurred during the infamous “Black Monday” of October 1987, when it tumbled 3,836 points, or 14.9%. At its lowest point on Monday, the Nikkei had fallen by as much as 13.4%.
The primary catalyst for this market turmoil is growing concern over the U.S. economic outlook. Recent data suggesting a potential slowdown in economic growth, coupled with persistent inflationary pressures and the Federal Reserve’s aggressive interest rate hikes, have stoked fears of an impending recession. These concerns have not only rattled American markets but have also sent shockwaves through global exchanges, prompting a wave of risk aversion among investors.
By the close of trading, the Nikkei had dropped 4,451.28 points to 31,458.42, while the broader TOPIX index fell by 12.8%. The selling intensified in the afternoon session, exacerbated by a report that U.S. employers had significantly slowed hiring more than expected last month. This news disrupted financial markets and shattered the recent optimism that had propelled the Nikkei to record highs of over 42,000 in recent weeks.
Global stock markets also reacted sharply to Friday’s disappointing U.S. employment data, which heightened concerns that the U.S. economy might be struggling under the weight of high interest rates aimed at curbing inflation. Early Monday, futures for the S&P 500 were down 1.5%, while those for the Dow Jones Industrial Average dropped 0.7%.
The sell-off affected a wide array of companies, with notable declines in major Japanese firms. Toyota Motor Corp. shares fell by 11%, Honda Motor Co. dropped 13.4%, computer chip maker Tokyo Electron tumbled 15.8%, and Mitsubishi UFJ Financial Group plunged 18.4%, according to the Associated Press.
Tokyo’s share prices have been declining since the Bank of Japan raised its benchmark interest rate on Wednesday. The Nikkei is now 3.8% below its level from a year ago. One factor behind the BOJ’s rate hike is the persistent weakness of the Japanese yen, which has driven inflation above the central bank’s 2% target. Early Monday, the dollar was trading at 142.39 yen, down from 146.45 late Friday and significantly below its level of over 160 yen just a few weeks ago.
The combination of a weaker yen and rising inflation poses a significant challenge for Japan’s economy, complicating the central bank’s efforts to maintain price stability. As global markets continue to react to economic data and central bank actions, the volatility seen in recent days may persist, underscoring the precarious state of the global economic landscape.
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