Japan’s Nikkei and TOPIX indices have experienced a dramatic fall of over 8% each, marking the worst stock market loss in the country since 1987. Both indices have dropped by approximately 20% from their all-time highs on July 11. Major trading houses such as Mitsubishi, Mitsui & Co, Sumitomo, and Marubeni have all seen their stocks plummet by around 10% each.
Monday’s crash followed a significant dip on Friday when the Nikkei and TOPIX plunged by 5% and 6%, respectively. This market downturn is likely a result of the Japanese central bank’s decision to increase interest rates and cut back on government bond purchases.
On Monday, the yen also fell to its lowest level against the US dollar since January 2024, hitting 142.77. A strong yen puts considerable pressure on Japanese stocks. According to Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, “The only reason why the Japanese market has been so strong in the last two years is because the Japanese yen has been very, very weak. Once it reverses, you’ve got to get out right, and I think they’re all getting out right now as a result of that.”
Will Japan’s Stock Market Improve if Interest Rates Are Cut?
The US market likely also played a role in the current predicament of the Japanese market. The Federal Reserve has been unclear about whether it will cut interest rates in the US in September, as many traders anticipate. This uncertainty may have spooked investors, leading to a mass selloff.
According to Kazuo Ueda, governor of the Japanese Central Bank, “If the economy and prices move in line with our projection, we will continue to raise interest rates.”
This crisis situation, combined with the winds of war in Islamic territories, has also heavily affected the cryptocurrency market, which now eagerly awaits the opening of the American market to see if the crisis worsens further or if there will be signs of relief.
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