On Friday, Japanese stocks plunged significantly as worries about the US economy and the Bank of Japan’s planned interest rate hikes put more stress on markets worldwide. It was the most significant drop in the Nikkei 225 in a single day since March 2020, with a 5.8% drop. This steep plunge made a global stock market drop that started when weak US economic data worsened. It had already dropped 2.5% the day before and is now at its lowest since January.
The Stoxx Europe 600 index fell 1.4%, which also shows how bad things were for markets in Europe. The DAX in Germany and the CAC 40 in France decreased by 1.2% and 0.6%, respectively. The FTSE 100 in London, mostly made up of banking stocks, decreased by 0.4%. With S&P 500 futures down 0.9%, US futures showed that Wall Street would have another rough start.
The BOJ raised rates by 15 basis points to 0.25% earlier this week. This was the second increase of the year, and the BOJ also said it would cut back on buying bonds. Traders now think that rates will go up again later this year as the BOJ tries to control inflation.
Mizuho Securities Ken Cheung remarked on the BOJ’s hawkish shift and its acknowledgment of inflation risks, suggesting more rate hikes could be on the horizon.
This increase has narrowed the interest rate gap between the US and Japan, causing the Japanese yen to appreciate against the dollar. Since mid-July, the yen has strengthened by over 4%, pushing the dollar down to 148.9 yen.
The rise of the yen presents risks to Japan’s equities market. Increased yen volatility could hurt Japanese exporters, which had previously benefited from a weaker yen. Citi experts remain optimistic about Japanese stocks long-term, believing rising wages and prices could drive an economic rebound.
In the US, buyers watch the job market closely for signs of economic stability amid high interest rates. The Dow Industrial Average dropped 1.2%, the S&P 500 fell 1.4%, and the Nasdaq Composite dropped 2.3%. The number of jobless claims went up, with the number of first-time applications hitting 249,000, the highest number since August, and the number of ongoing allegations going up to 1.877 million, the highest number since November 2021.
