Finance
Japan’s Nikkei suffers its biggest defeat since Black Monday in 1987
By Ankur Banerjee and Junko Fujita
TOKYO (Reuters) – Japanese shares slumped on Monday in their biggest one-day rout since the 1987 Black Monday sell-off, driven by last week’s plunge in global stock markets, economic worries and worries that investments were being funded by a cheap yen settled.
The Nikkei stock average lost as much as 12.4% after Friday’s gloomy jobs data raised concerns about a possible recession and as the yen rebounded to a seven-month high against the dollar. This was the index’s worst performance in percentage terms since the October 1987 crash.
Japanese banking stocks led the rout, pushing the Nikkei into bear market territory given its 27% decline from its July 11 peak of 42,426.77.
From July 11 to Monday’s close of 31,458.42, Nikkei has wiped 113 trillion yen ($792 billion) off that peak market value.
“The yen’s rapid move puts downward pressure on Japanese stocks, but also unwinds a large carry trade – investors had increased their leverage by borrowing in the yen to buy other assets, especially US tech stocks,” said Kyle Rodda. a senior financial market analyst at Capital.com in Melbourne.
“We are actually seeing massive deleveraging as investors sell assets to finance their losses.”
The Nikkei lost 4,451.28 points on Monday, its biggest ever drop in a single day in terms of points, surpassing the 3,836.48 points it lost on October 20, 1987, when the global stock market crash on Black Monday hit Japanese markets.
Japanese Finance Minister Shunichi Suzuki said the government was watching markets with “serious concern.”
“It is difficult to say what is behind the decline in stocks,” Suzuki told reporters.
Most analysts said neither interest rate expectations nor economic data could explain the severity of the sell-off, although it may have been driven by the rise in the yen, whose near-zero short-term yields and steady depreciation had made it the financing currency for billions . dollars of investment for years.
The yen last rose 2.5% to 142.96 per dollar and has risen 14% in less than a month, driven in part by the Bank of Japan’s rate hike last week and the expiration of the yen’s financed carry trades.
“In short, not just the currency, but the entire ‘value’ trade in Japan, which had hijacked our market for two years, is being unwound,” said Richard Kaye, portfolio manager at Comgest in Tokyo.
WORLDWIDE SALE
U.S. stocks sold off for a second straight session on Friday, with the Nasdaq Composite index confirming it was in correction territory after the jobs report stoked fears of a recession and expectations of a big Federal Reserve rate cut in September. [.N]
U.S. stock futures were sharply lower, a sign that Wall Street stocks were heading for another sell-off.
“I think the concerns about the US economic slowdown were too great, but the market got nervous after the Bank of Japan rate hike because they thought the domestic economy was not strong enough to justify the rate hike,” says Tomochika Kitaoka , chief equity strategist at Nomura securities.
The banking sector fell 17% to become the worst sector among the Tokyo Stock Exchange’s 33 industrial sub-indexes.
Chip equipment maker Tokyo Electron fell 18.48% and was the biggest drag on the Nikkei. Uniqlo brand owner Fast Retailing lost 9.59% and technology investor SoftBank Group fell 18.66%.
The broader Topix fell 12.2% to 2,227.15, its weakest since mid-October, and also moved into bear territory as it posted a 25% decline from the July 11 peak.
($1 = 142.6200 yen)
(Reporting by Junko Fujita, Ankur Banerjee and Rocky Swift; Writing by Vidya Ranganathan, Editing by Shri Navaratnam and Himani Sarkar)
