Japan’s stock market had its biggest one-day drop ever on Monday, falling over 12%. The benchmark Nikkei 225 index fell by 4,451 points, a decline of over 12%, pushing its total losses to 24% since early July. The market has reported worst losses since the crisis of 1987. This significant drop has pushed the index into bear market territory, which is defined as a decline of 20% or more from recent highs. This was part of a bigger global market sell-off.
Here’s what happened and why:
Recent job reports from the US showed fewer new jobs than expected, which worried investors about the health of the global economy.
The value of Japan’s currency, the yen, went up. This is because the Bank of Japan (BOJ) hinted at raising interest rates to control inflation. A stronger yen is bad for Japanese companies that sell goods overseas because it makes their products more expensive for foreign buyers.
For a long time, investors borrowed money cheaply in Japan (thanks to low interest rates) and invested it in other countries for higher returns. With the yen getting stronger, these investors started reversing these trades, which added to the market turmoil.
The BOJ’s plan to raise rates, along with China’s slowing economy and poor performance from major US tech companies, made investors nervous about the global economy.
The BOJ recently raised interest rates slightly and indicated more increases might be coming. This was surprising to many and added to market fears.These factors led to big drops in stock markets not only in Japan but also in other parts of Asia. Markets in South Korea, Taiwan, Australia, Hong Kong, and China also fell sharply. The same day, US stock markets were already down due to similar concerns.
Report By Syed Sami Hassan, Intern At The Pakistan Frontier.