The Yen's appreciation exacerbates the decline in the Japanese stock market! The Nikkei Index plummeted by 13% in a single day, entering a technical bear market
The Bank of Japan's interest rate hike has led to the appreciation of the Japanese yen, causing a heavy blow to the Japanese stock market. The Nikkei Index plummeted by 13% in a single day, entering a technical bear market. The decline in stock prices has a negative impact on corporate operating expectations, putting pressure on credit spreads. The yield on Japanese government bonds has dropped significantly, and the global bond market rally reflects concerns about the US economic outlook. Global investors are turning to safe-haven assets. Japanese policymakers are facing a complex situation, as loose monetary policy may stifle the domestic currency and disrupt the stock market. Investors are worried about lagging support from the Federal Reserve. The yen to dollar exchange rate may further appreciate
Zhitong Finance APP noticed that the intensity of this fluctuation continues to catch Japanese market investors off guard, affecting everyone from stock and forex retail traders to large hedge funds and institutions.
The decline in bond yields has cast a shadow over bank earnings, leading to a record 21% intraday drop in the stock price of Japan's largest bank, Mitsubishi UFJ Financial Group.
Since the Bank of Japan raised interest rates on July 31st, the yen has appreciated significantly, shaking global markets and disrupting countless investment strategies built on cheap yen borrowing.
Charu Chanana, head of forex strategy at Shengbao Bank, said, "The situation facing Japanese policymakers is very complex - loose monetary policy will strangle the domestic currency, while any signs of tightening will disrupt the domestic stock market." She said that if concerns about a US economic recession continue to intensify, the yen could quickly rise to 140 against the dollar, further weighing on the Japanese stock market.
Since the Bank of Japan's rate hike, all 33 industry categories of the TOPIX index have seen declines. The index fell into a correction last Friday, dropping more than 10% from its July high. On Monday, the Nikkei 225 index fell over 13%, dipping above 31,000 points, down more than 20% from the multi-decade high set on July 11, entering a technical bear market.
Noritaka Oda, head of syndicated debt business at Sumitomo Mitsui DS Securities, said, "Falling stock prices mean that companies' future operating performance is expected to deteriorate. If the economy weakens, credit spreads may also face widening pressure."
The benchmark 10-year Japanese government bond yield fell by as much as 17 basis points, the largest drop since 2003.
Risk aversion is not solely originating from Japan. The rise in global bond markets leading to lower yields largely reflects concerns about the US economic outlook. Markets are increasingly worried that the Federal Reserve is lagging behind in policy support, with global investors abandoning risk assets and turning to safe-haven assets