Key Points
- Japan’s Nikkei 225 index experienced its largest single-day point drop in history, falling 4,451 points (over 12%) on August 5, 2024, following weak U.S. jobs data and concerns about the strengthening yen.
- The global stock rout intensified across Asian markets, with South Korea’s Kospi down 8% and Taiwan’s Taiex suffering its worst day ever with an 8.4% decline, while U.S. markets had already entered correction territory.
In a day of unprecedented market turmoil, Japan’s Nikkei 225 stock index experienced its most significant single-day loss since the infamous “Black Monday” crash of 1987. The benchmark index plummeted by 4,451 points, marking a staggering decline of over 12% and pushing its losses to 24% since early July. This dramatic fall has thrust the Nikkei into bear market territory, a 20% pullback from recent highs.
The selloff, which began last week, intensified following the release of weak U.S. jobs data on Friday. The U.S. Labor Department reported a sharp slowdown in job growth for July, with unemployment rising to its highest level since 2021. This news triggered a global market rout with strong ripple effects across Asian markets.
Circuit breakers, designed to halt trading during periods of extreme volatility, were triggered multiple times in Tokyo and Seoul as investors rushed to sell. The Korea Exchange briefly paused trading in the benchmark Kospi index after it plunged more than 8%. Taiwan’s Taiex ended the day down 8.4%, marking its worst performance on record. Other Asian markets also suffered significant losses, with Australia’s S&P/ASX 200 dropping 3.6% and Hong Kong’s Hang Seng Index and China’s Shanghai Composite declining 2.6% and 1.2%, respectively.
The market turmoil was exacerbated by a rapid appreciation of the Japanese yen, which surged nearly 5% against the U.S. dollar last week and continued to strengthen on Monday, trading at around 142 to the dollar. This sharp rise in the yen’s value has forced many investors to unwind the popular yen carry trade strategy, where investors borrow in low-interest-rate currencies like the yen to invest in higher-yielding assets elsewhere.
The strengthening yen poses a significant challenge for Japanese exporters and companies with substantial overseas earnings. Financial and exporter stocks led the declines in Tokyo, with Sumitomo Mitsui Financial Group down 16%.
Adding to investor concerns, the Bank of Japan (BOJ) recently signaled that further rate hikes could be on the horizon. Last week, the BOJ raised interest rates by 15 basis points to 0.25% in its second hike this year and announced plans to taper its bond-buying program. This move, coupled with expectations of potential U.S. Federal Reserve rate cuts, has begun to narrow the interest rate gap between the two countries, making yen-based investments more attractive.
The global selloff was further fueled by disappointing tech earnings in the United States, with Amazon reporting an earnings miss and Intel announcing significant job cuts. Additionally, recent data indicating continued weakness in China’s factory activity has increased concerns about global economic growth.
Oil prices have also felt the impact of the market turmoil, settling at their lowest levels since January. However, analysts suggest that oil prices may stabilize soon, barring any dramatic geopolitical events in the Middle East.
As markets grapple with these challenges, investors and policymakers will closely monitor economic indicators and central bank actions in the coming weeks. The current market volatility is a stark reminder of the interconnectedness of global financial systems and the potential for rapid shifts in investor sentiment.
