Japan’s Nikkei 225 plunged by up to 7.1% early Monday before regaining some ground. The index dropped more than 2,500 points at one stage. By midday in Tokyo, it had reduced its losses to about 5.5%, standing at 33,945.43, down roughly 1,900 points.
The broader TOPIX index fell 7.8% at its lowest before recovering to a 6.6% decline.
Friday saw significant stock sell-offs due to concerns about the U.S. economy, strained by high interest rates aimed at controlling inflation. Early Monday, futures for the S&P 500 were down 1.4%, and the Dow Jones Industrial Average futures dropped 1.5%.
Stephen Innes from SPI Asset Management commented on the market’s heightened volatility, highlighting the current anxiety. He questioned whether the market’s usual strategies of selling volatility or buying dips could counteract the deep-seated recession fears.
A report last month revealed a significant slowdown in U.S. hiring, which has shaken financial markets and erased the recent euphoria that pushed the Nikkei above 42,000 and Nikkei 225 plunges 7.1% amid global market turmoil.
Investors await the U.S. Institute for Supply Management’s data on the services sector, due later Monday, which may determine whether the global sell-offs are justified, according to IG’s Yeap Jun Rong.
Across Asia, Taiwan’s Taiex experienced the steepest fall, dropping 7.4%. Taiwan Semiconductor Manufacturing Co., a major market player, lost 5.3%.
Hong Kong’s Hang Seng index fell 2.1% to 16,945.51, while Australia’s S&P/ASX 200 declined 1.3% to 7,725.40. South Korea’s Kospi dropped 3.4% to 2,570.64.
On Friday, the S&P 500 saw a 1.8% decline, marking its first consecutive losses of at least 1% since April. The Dow Jones Industrial Average fell 610 points, or 1.5%, and the Nasdaq composite dropped 2.4%.
Friday’s tech stock losses drove the Nasdaq composite down 10% from its record high last month, a drop traders call a “correction.”
The downturn began shortly after U.S. stock indexes surged, following Federal Reserve Chair Jerome Powell’s indication that inflation had slowed enough to potentially lower rates in September.
Concerns are mounting that the Fed may have kept its key interest rate at a two-decade high for too long, increasing recession risks in the U.S. Lowering the rate would make borrowing cheaper for households and companies, potentially boosting the economy, but the effects could take months to manifest.
Tan Boon Heng from Mizuho Bank in Singapore noted fears of higher unemployment restraining spending, hiring, and incomes, potentially leading to a recession.
Despite U.S. economic growth, worries about its fragility and market volatility have global repercussions.
The Nikkei 225 dropped 5.8% on Friday, struggling since the Bank of Japan raised its benchmark interest rate on Wednesday. The index is now near its level at the year’s start.
Friday and Monday’s sell-offs were among the worst for the Nikkei since the market crashes of Black Monday in October 1987.
The small rate increase, from 0.1% to 0.25%, raised the Japanese yen’s value against the U.S. dollar, potentially harming exporters’ profits and tourism. However, U.S. economic concerns appear to be driving the stock sell-offs.
Early Monday, the dollar traded at 145.50 yen, significantly down from over 160 yen a few weeks ago.