Japanese Stock Market Drops After Bank of Japan Rate Hike
In the Asian stock markets, Japanese indices registered high losses during the early trading session on Monday. The Japanese markets are down 20 per cent from their recent all-time highs. The Nikkei 225 index declined more than 1600 points or 4.85 per cent to 34,247.56.
The markets of Japan faced pressure after the Bank of Japan announced a well-telegraphed rate hike, which led to an unwinding of Yen Carry trades, as the Yen appreciated. Foreign investors are selling Japanese stocks due to concerns that the U.S. may be heading for a recession, Naka Matsuzawa, chief strategist at Nomura Securities, said. “The fall is not really happening due to Japan-specific reasons,” he said. “Markets are still trying to find the bottom.”
According to Matsuzawa, he does not foresee a global recession and said markets will be volatile until the U.S. Federal Reserve lowers rates. Investors are pricing in a cut by September.
In Taiwan markets, the Taiwan Weighted index also declined by more than 6 per cent, and the Singapore market also declined with the index Straits Times declining around 3 per cent. Globally, markets are reacting after on Friday, the Sahm Rule got triggered, as US unemployment reached 4.3 per cent. This is predicting a US recession.
The “Sahm Rule” is a recession indicator created and named after Claudia Sahm, a macroeconomist who worked at the Federal Reserve and the White House Council of Economic Advisers. “Expect more selling in the markets, but as we saw on June 4th and in July post the Union Budget, the strong domestic liquidity could provide a safety net for the Indian markets, in a worsening global sentiment environment. What is hurting market sentiment is also the triggering of the ‘Sahm rule’, which has a 100 per cent record for predicting a recession,” said Ajay Bagga, Banking and Market Expert.
According to the market experts, the Indian markets are also expected to start on a lower note following the Global cues. Indian markets settled sharply lower on Friday, ending the week in the red. At closing, Sensex and Nifty were 1.1-1.2 per cent lower at 80,981.95 points and 24,717.70 points, respectively.
Doubts Revealed
Japanese Stock Market -: This is a place where people buy and sell shares of companies in Japan. It’s like a big marketplace for company ownership.
Bank of Japan -: This is the central bank of Japan. It controls the money supply and interest rates in the country.
Rate Hike -: This means the Bank of Japan has increased the interest rates, which can make borrowing money more expensive.
Nikkei 225 -: This is a stock market index in Japan. It shows how the top 225 companies in Japan are performing.
Yen Carry Trades -: This is a financial strategy where people borrow money in Japanese Yen at low interest rates and invest it in other currencies with higher interest rates.
Foreign Investors -: These are people or companies from other countries who invest money in Japan’s stock market.
U.S. Recession -: A recession is when the economy of a country, like the United States, slows down and people buy less stuff.
Sahm Rule -: This is a rule used to predict if the U.S. economy is going into a recession. It looks at changes in the unemployment rate.
Global Market Sentiment -: This is how investors around the world feel about the economy and stock markets. If they are worried, they might sell their stocks.
Indian Markets -: These are places in India where people buy and sell shares of companies, similar to the stock market in Japan.