Japan Stocks Confirm Bear Market as Asia-Pacific Markets Continue Sell-Off

Japan’s stock market has confirmed a bear market status on Monday, marking its most significant downturn since the “Black Monday” crash of 1987. The Nikkei 225 and Topix indices have both plummeted over 12%, contributing to a wider Asia-Pacific market sell-off that began last week.

The benchmark indexes have now fallen more than 20% from their all-time highs reached on July 11. The Nikkei 225 closed at 31,458.42, a staggering 12.4% drop, making it the worst day for the index in decades. The loss of 4,451.28 points is also the largest in terms of points in the index’s entire history. This drastic drop has erased all gains made by the Nikkei this year, moving it into a loss position year-to-date.

The broad-based Topix index also experienced a significant decline, tumbling 12.23% to close at 2,227.15. Heavyweight trading houses such as Mitsubishi, Mitsui & Co, Sumitomo, and Marubeni saw their stocks plunge over 14%, with Mitsui losing nearly 20% of its market cap.

Market Reaction and Global Impact

Monday’s decline follows Friday’s rout, where the Nikkei 225 and Topix fell more than 5% and 6%, respectively. The broader Topix marked its worst day in eight years, while the Nikkei saw its worst performance since March 2020.

In currency markets, the yen strengthened to its highest level against the dollar since January, trading at 142.09. South Korea’s Kospi fell 8.77%, closing at 2,441.55, while the small-cap Kosdaq saw an 11.3% wipeout, ending at 691.28. Due to the magnitude of the sell-off, circuit breakers were activated on both indices, halting trade for 20 minutes in the afternoon.

Broader Economic Concerns

Investors are anxiously awaiting key trade data from China and Taiwan this week, as well as central bank decisions from Australia and India. China’s service sector showed some positive signs, with the purchasing managers’ index climbing to 52.1 in July from 51.2 in June, indicating faster growth.

Taiwan’s benchmark index, the Taiwan Weighted Index, was down over 8%, dragged by tech and real estate stocks. Australia’s S&P/ASX 200 fell 3.7% to 7,649.6 ahead of the Reserve Bank of Australia’s monetary policy meeting. Economists expect the central bank to hold rates steady at 4.35%.

Hong Kong’s Hang Seng index was down 1.62% in its final hour of trade, while mainland China’s CSI 300 fell 1.21% to 3,343.32, seeing the smallest loss in Asia.

Global Ripple Effect

The global stock market rout accelerated following Japan’s drastic downturn. The FTSE 100 index in London slumped 2%, and Wall Street is expected to face further selling pressure. The Nasdaq Composite closed 2.4% lower and the S&P 500 index lost 1.8% on Friday, with tech giants Amazon and Intel taking significant hits.

The risk-averse mood also swept through the cryptocurrency market, with Bitcoin slumping by 10% to $52,729.

In London, the FTSE 100 index dropped 200 points to trade below 8,000 for the first time since April, and the UK-focused FTSE 250 index reversed by 3%. Big fallers included tech sector backers Pershing Square Holdings and Scottish Mortgage Investment Trust, whose shares fell 8%, while Baillie Gifford Japan Trust reversed 7% in the FTSE 250.

Economic Indicators and Recession Fears

Recession fears were reignited on Friday after US payroll growth of 114,000 fell short of Wall Street’s 175,000 forecast, with June figures revised lower. The unemployment rate hit a three-year peak of 4.3%, above the expected 4.1%, potentially distorted by hurricane disruption.

The figures prompted a sharp surge in bets on Federal Reserve interest rate cuts, with markets now predicting a 200 basis points reduction over the next 12 months.

As the global economic landscape remains uncertain, investors and market participants are bracing for further volatility and potential downturns in the coming weeks.

David Thompson
Financial Desk