Yen Strengthens, Japanese Stocks Plunge: Seeking Stability in a Panic Market
Tokyo Market Movements
The Tokyo market has opened the week with a panic atmosphere. The USD/JPY pair plunged from the 146 yen level last weekend to as low as the 141 yen range. Japanese stocks experienced an even more drastic movement, with the Nikkei 225 index falling over 4700 points at one point, particularly intensifying in the afternoon session. The Nikkei 225 futures triggered circuit breakers twice, and all constituent stocks of the Nikkei 225 declined.
Market Background
No specific bad news has emerged today, but last Friday’s U.S. employment data showed an increase in the unemployment rate and job growth falling short of expectations, sparking concerns about a U.S. economic slowdown. The market has priced in a 70-80% chance of a 50 bp rate cut at the September FOMC meeting, with expectations for another 50 bp cut in the following meeting.
Meanwhile, the Bank of Japan (BoJ) implemented an additional 25 bp rate hike. Governor Ueda has indicated no strict adherence to a 0.50% interest rate level, suggesting the possibility of further rate hikes. This has shifted market sentiment rapidly from expectations of a widening U.S.-Japan interest rate differential to narrowing. As a result, the yen has strengthened, and Japanese stocks have plummeted.
Global Stock Market Decline
The decline in Japanese stocks is particularly significant, with the Nikkei 225 falling more than 12% at one point. However, this is part of a global stock sell-off, with the sharp drop in semiconductor indices affecting markets worldwide.
Points of Interest Moving Forward
It is crucial to monitor when this panic market will regain stability. The focus will be on European stock movements, followed by the New York stock market, the originating point of the semiconductor stock decline. For USD/JPY, the psychological level of 140.00 is expected to serve as a near-term reference, with the recent low of 140.25 from December 28th last year being closely watched.
Economic Indicators and Events
The following economic indicators are scheduled for release in overseas markets:
- Turkey Consumer Price Index (July)
- Final Non-Manufacturing (Services) PMI Figures (July) from France, Germany, the Eurozone, the UK, and the U.S.
- Eurozone Producer Price Index (PPI) (June)
- U.S. ISM Non-Manufacturing Index (July)
The U.S. ISM Non-Manufacturing Index is expected to improve to 51.0 from the previous 48.8, potentially providing a rebound catalyst for U.S. stocks.
Regarding event-related remarks, Chicago Fed President Goolsbee is scheduled to appear on a CNBC program, and San Francisco Fed President Daly is set to give a speech on monetary policy and the economy, including a Q&A session.
Market Attention Points
Multiple factors, including the BoJ’s additional rate hike, foreign investor withdrawals, and Middle East tensions, are contributing to the current panic market. The heightened tension between Iran and Israel is particularly concerning, and a significant market reversal could occur once Iran initiates an attack.
It remains essential to closely monitor market developments and exercise diligent risk management.
