Japanese stocks suffer largest single-day drop ever on U.S. recession fears

A pedestrian passes a screen showing real-time stock market information in Tokyo, Japan, Aug. 5, 2024. (Xinhua/Yue Chenxing)

The benchmark Nikkei lost 4,451.28 points to end the day at 31,458.42, its lowest level this year, refreshing its record intraday drop which was previously seen at 3,836 points in the "Black Monday" crash in 1987.

TOKYO, Aug. 5 (Xinhua) -- As dismal economic data in the United States heightened fears of a possible recession, panic selling gripped the Tokyo stock market on Monday with Japan's benchmark Nikkei Stock Average logging its largest single-day point drop in history.

Analysts here have noted that there has been a rush to flee the market by foreign institutional investors, hedge fund managers and individual Japanese investors.

Following a sharp drop last Friday, Tokyo stocks plunged again on Monday morning. By the close of trading, the 225-issue Nikkei Stock Average fell by 12.40 percent, while the broader Topix index, also known as the Tokyo Stock Price Index, sank by 12.23 percent, wiping out all gains amassed earlier in the year.

The benchmark Nikkei lost 4,451.28 points to end the day at 31,458.42, its lowest level this year, refreshing its record intraday drop which was previously seen at 3,836 points in the "Black Monday" crash in 1987.

Tokyo stocks have been on a downward spiral since Thursday, with the Nikkei losing over 7,600 points in three consecutive trading days. On July 19, the Nikkei index last closed above the 40,000-point mark.

Trading of Nikkei 225 futures and Topix futures was suspended temporarily at Osaka Securities Exchange on Monday to prevent panic selling after the decline triggered circuit breakers designed to contain severe market drops.

Local media and market participants generally believe that the reason for the Tokyo stock market's continuous declines is primarily the United States, where fears over a possible recession in the U.S. economy has caused severe fluctuations in global markets.

The Federal Reserve ended its two-day policy meeting on July 31 and signaled a possible rate cut in September. As the negative effects of high interest rates on the U.S. economy continue to emerge, some economists worry that the Fed's move to cut rates too slowly could pose risks for the U.S. economy.

The Institute for Supply Management announced on Aug. 1 that its U.S. manufacturing index fell to 46.8 percent in July, significantly lower than June's reading of 48.5 percent. A reading below 50 represents contraction in the manufacturing sector.

U.S. Census Bureau data released on Aug. 2 showed that new orders of manufactured goods in June decreased by 3.3 percent. This decline marked the second consecutive monthly decrease, following a 0.5 percent drop in May.

According to the U.S. Department of Labor, total non-farm payroll employment rose by 114,000 in July, well short of the forecast of 175,000. The U.S. unemployment rate, meanwhile, jumped to nearly a three-year high of 4.3 percent in July amid a significant slowdown in hiring.

The series of economic data fell short of expectations, fueling concerns that the U.S. economy may be slowing faster than anticipated. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index in New York fell consecutively on Thursday and Friday.

A pedestrian passes a screen showing real-time stock market information in Tokyo, Japan, Aug. 5, 2024. (Xinhua/Yue Chenxing)

Meanwhile, the sharp appreciation of the yen dealt another blow to Japanese stocks. In early July, when investors were still optimistic about the U.S. economic outlook, the yen tumbled to the lower 161 range against the U.S. dollar in Tokyo, marking its lowest point in 37 and a half years.

On Monday, the yen strengthened to the 141 zone against the U.S. dollar briefly in Tokyo, an appreciation of more than 4 percent in one day. In about a month, the yen's exchange rate against the U.S. dollar rose by nearly 20 yen, an increase of more than 11 percent.

Analysts believe that two major factors contributed to the current rapid appreciation of the Japanese currency. On the one hand, disappointing U.S. economic data have stoked recession fears, leading to a significant overall weakening of the U.S. dollar against major global currencies.

On the other hand, the Bank of Japan (BOJ)'s sudden decision to hike interest rates a few days ago reversed the previously prevailing trend of "selling yen and buying Japanese stocks," especially when investors' expectations that the BOJ may continue to raise interest rates in the future added pressure on the yen to appreciate.

Against this backdrop, the prospect of a narrowing interest rate gap between Japan and the United States is prompting investors to sell U.S. dollars and buy yen, and Tokyo shares have been under heavy selling pressure.

The decline in the U.S. stock market is not as large as that in Japan, stockbrokers here added. There could be a possibility of "excessive panic" in Japan, but the U.S. market may continue to fluctuate sharply in the future.