- 2024-07-16
- News
"12% Daily Plunge!"
On August 5th, the Japanese stock market experienced an epic decline, with the Nikkei 225 index plummeting by 12.4% in a single day. Investors in Japanese stocks must have been envious of those in the A-share market that day, as the A-share market has limits on price fluctuations, making it nearly impossible for the market to drop by more than 10% in a day.
Led by the Japanese stock market, Asian stock markets suffered a comprehensive decline, with the stock indices of South Korea and Taiwan falling by more than 8%, and the Hang Seng Index in Hong Kong dropped by more than 2%.
Due to the significant downturn in the Nikkei index, concerns arose in the United States about its impact on the opening of the U.S. stock market in the evening. As a result, the Federal Reserve held an emergency closed-door meeting to discuss whether to cut interest rates in advance to counter the sharp decline in Japanese stocks.
However, even with good news from the market, it failed to prevent the decline in the U.S. stock market. Among the three major stock indices, the Nasdaq, which represents the technology industry, fell the most severely, dropping by 3.4% that day.
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On August 6th, the situation took a 180-degree turn. The Japanese stock market launched a massive counterattack, rising by 10.2% in a single day, setting a historical record. On August 7th, the rebound of the Nikkei index was somewhat restrained, with a full-day increase of 1.2% by the close. In the two trading days following the century's great crash, the Nikkei index rose by a cumulative 11.5%, almost recovering all the lost ground.
Why does the Japanese stock market fluctuate so dramatically? The reason is related to the recent capricious policy measures of the Bank of Japan.
In order to curb the depreciation of the yen and domestic inflation, the Bank of Japan suddenly announced an interest rate hike at the end of the monetary policy meeting on July 31st, raising the policy interest rate from 0.1% to 0.25%. They also mentioned that the interest rate target is not 0.5%, implying further rate hikes. It should be noted that Japan had just raised interest rates in March, marking the country's first rate hike in 17 years, turning the long-term negative interest rates to positive.
Since the interest rate was adjusted four months ago, and the Bank of Japan kept releasing messages that they would not raise rates so soon again, the market once believed that the Bank of Japan's monetary tightening policy was over. Unexpectedly, the Governor of the Bank of Japan, Haruhiko Kuroda, played an unexpected card by "not following the rules."
After the interest rate hike, the yen exchange rate did stabilize, appreciating by 1.85% on the same day. In the following trading days, it continued to rise, reaching a peak of 141.7, appreciating by more than 10% compared to 161.9 a month ago, and successively crossing the 160 and 150 integer thresholds.
There are gains and losses. The second trading day after the rate hike, the Nikkei index fell by 2.49%, the next trading day it fell by 5.8%, and then came the epic 12.4% drop, with Japanese stocks plummeting uncontrollably.The stock market is a barometer of the economy. Capital voting with its feet to abandon Japanese stocks signifies a lack of confidence in the future development of Japan's economy and businesses, which is closely related to the sudden interest rate hike by the Bank of Japan.
On one hand, Japan has an export-oriented economy. After the interest rate hike, the yen appreciates, and the appreciation of the domestic currency is not conducive to exports. On the other hand, Japan has been pursuing a globalization strategy for a long time, with many Japanese companies investing and building factories overseas. The appreciation of the exchange rate leads to exchange losses when overseas income is converted back into yen in Japan, affecting corporate profits.
The Bank of Japan should take full responsibility for this round of stock market crash in Japan!
As soon as the situation was not right, the Bank of Japan immediately "watered down". To appease restless investors, the deputy governor of the Bank of Japan stated that there would be no interest rate hike if the market was unstable. He said, "Due to the very unstable development of domestic and international financial and capital markets, the Bank of Japan needs to maintain a loose monetary policy interest rate."
Although this statement immediately caused a rebound in the Japanese stock market, it also seemed to slap the face of the Bank of Japan governor a few days ago. Is it true that high-level officials in Japan are so inconsistent? The most tragic are the investors in Japanese stocks. How many people had to cut their losses in the crash on August 5, and how many leveraged investors went bankrupt that day. The Bank of Japan has played with the world.
What role do you think the United States played in this? I think it may have "taken care of" Japan, asking it not to "act recklessly".
Do you remember that the Federal Reserve held an emergency closed-door meeting on August 5 when the Japanese stock market crashed? At that time, there were rumors that the Federal Reserve would cut interest rates in advance within a week after the meeting, but later there was no follow-up. Then the deputy governor of the Bank of Japan came out to soothe market sentiment, and in a way that slapped the face of the governor. Do you think the Federal Reserve might have given some "advice" to the Bank of Japan after the meeting?
According to the plan of the Federal Reserve, it does not want to cut interest rates in advance and at least go through the regular procedure, that is, to wait until the FOMC meeting is held in September before cutting. If the U.S. stock market is dragged down too much by the Japanese stock market, it can only start the unconventional interest rate reduction procedure. In order to avoid this situation as much as possible, the United States has a motive to "negotiate" with Japan, asking the other party not to easily raise interest rates.
Japan will not be too disgusted either. After all, its own stocks have fallen more tragically. Speaking some soothing words not only gives face to the Federal Reserve but also boosts the stock market. It has an account for both internal and external parties. This "face-slapping" operation is not a loss. As for the face of the Bank of Japan, it's gone. Anyway, Japan has not raised its head in front of the United States since the end of World War II. The father has spoken, and the son has no right to talk back?
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