TOKYO, Aug 5 — Japanese shares suffered their biggest one-day crash on Monday since the 1987 Black Monday sell-off, fuelled by last week’s sharp sell-off in global stock markets, economic uncertainty and worries that investments financed by a weak yen were unwinding.
The Nikkei stock average (.N225) plunged as much as 12.4 percent after a weak jobs report on Friday stoked fears of a possible economic recession and sent the yen climbing to a seven-month high against the dollar.
This was the index’s worst performance on a percentage basis since the October 1987 crash.
Japanese bank stocks led the sell-off, sending the Nikkei stock average into a bear market, dropping 27% from its July 11 peak of 42,426.77.
Between July 11 and Monday’s closing price of 31,458.42, the Nikkei lost 113 trillion yen ($792 billion) of its peak market capitalization.
“The sharp fluctuations in the yen are putting downward pressure on Japanese stocks but at the same time it is also prompting the unwinding of large carry trades where investors had been using leverage to borrow in yen to buy other assets, mainly U.S. tech stocks,” said Kyle Roda, senior financial markets analyst at Capital.com in Melbourne.
“There’s essentially a massive deleveraging happening as investors are selling assets to cover losses.”
The Nikkei Stock Average fell 4,451.28 points on Monday, its biggest one-day drop on a point basis ever and surpassing the 3,836.48-point drop recorded in Japan during the global stock market crash of Black Monday on October 20, 1987.
Finance Minister Shunichi Suzuki said the government was monitoring the market with “serious concerns.”
“It’s difficult to talk about the background to the decline in stock prices,” Suzuki told reporters.
Many analysts said neither interest rate forecasts nor economic data could explain the severity of the selling pressure, but that it could also be due to a strengthening yen, which has been the base currency for billions of dollars’ worth of investment for years as short-term interest rates have fallen steadily around zero.
The yen was recently up 2.5% at 142.96 to the dollar, but has risen 14% in less than a month thanks to the Bank of Japan’s interest rate hike last week and the unwinding of yen-denominated carry trades.
“The bottom line is that not just the currency but the entire ‘value’ trade that has dominated Japanese markets for two years is unwinding,” said Richard Kay, portfolio manager at Comgest in Tokyo.
Global sales
U.S. stocks sold for a second straight session on Friday, with the Nasdaq Composite Index finding itself in correction territory after jobs data stoked fears of a recession and hopes of a big interest rate cut by the Federal Reserve in September.
U.S. stock futures fell sharply, suggesting Wall Street stocks were under fresh selling pressure.
“I think the concerns about a U.S. economic slowdown were too great, but after the Bank of Japan’s rate hike, the market decided that the domestic economy was not strong enough to justify another rate hike and became nervous,” said Tomochika Kitaoka, chief equity strategist at Nomura Securities.
The banking sector (.IBNKS.T) fell 17 percent, making it the worst-performing sector among the Tokyo Stock Exchange’s 33-industry sub-index.
Semiconductor equipment maker Tokyo Electron Co. (8035.T) was the biggest drag on the Nikkei average, dropping 18.48 percent. Uniqlo brand owner Fast Retailing Co. (9983.T) fell 9.59 percent, while technology investment firm SoftBank Group Corp. (9984.T) slid 18.66 percent.
The Tokyo Stock Price Index (.TOPX) fell 12.2% to 2,227.15, its lowest since mid-October, and has fallen 25% since its July 11 high, entering a bear market.
(1 dollar = 142.6200 yen)
