Today is a historic day for Japan's stock market, as the epicenter of this financial crisis is Japan itself, with potential spillover effects to global markets.
Japan Stocks Plunge at Open
Nikkei 225 Falls Over 10% by Midday
At the end of last month, the Bank of Japan unexpectedly raised interest rates by 15 basis points to a range of 0.15% to 0.25%, exceeding market expectations. At the same time, the BOJ announced a tapering plan for its bond purchases, reducing the amount by 400 billion yen each quarter, and gradually cutting monthly purchases to 3 trillion yen. It will no longer provide a range for bond purchases but a specified amount, falling short of the expected monthly reduction of 1 trillion yen. The next day, the Nikkei plunged and the yen surged. The BOJ's policy shift poses a serious challenge to investors engaged in the "Carry Trade", forcing many to unwind positions, adding another domino of uncertainty to the market.
Exchange Rate Impact Cannot Be Ignored
The sudden strengthening of the yen due to the rate hike will cause funds involved in yen carry trades to rapidly flow back to Japan. Many yen traders face significant foreign exchange loss risks.
The BOJ has ended its decades-long low-interest-rate policy. Changes in BOJ policy could significantly alter the underlying logic of global financial markets, increasing uncertainty. Investors need to manage risk exposure and adjust trading strategies accordingly.
Japan Stocks Also Affected by Panic in US Markets
- On July 31, the Fed kept the federal funds rate target range at 5.25% to 5.50%, as expected, but signaled a possible rate cut in September, confirming progress on inflation and shifting focus to avoiding employment risks.
- The US July ISM Manufacturing Index came in at 46.8, below the expected 48.8 and the prior 48.5, the worst reading since 2009 outside of the pandemic period. New orders also missed expectations.
- The US July nonfarm payrolls report shocked the market: only 114,000 jobs added, the lowest since December 2020, far below the expected 175,000 and down sharply from the revised 179,000 (prior 206,000). The unemployment rate rose to 4.3%, the highest since October 2021, above the 4.1% forecast. Wage inflation continued to cool: average hourly earnings rose 0.2% month-over-month, slightly below the 0.3% expected and prior, and 3.6% year-over-year, below the 3.7% expected and 3.9% prior. The 4.3% unemployment rate triggered the Sahm Rule, a recession indicator with 100% accuracy, suggesting a recession has already begun. US equity futures and the dollar fell sharply pre-market, with traders pricing in a 50bp cut in September and over 110bp of cuts this year. US recession and the potential for a great depression
- Intel's Q2 revenue unexpectedly declined 1% year-over-year, with Q3 guidance for up to 11% decline. EPS guidance swung from profit to loss. Intel plans to cut $10 billion in costs by 2025, lay off about 15,000 employees (mostly this year), and suspend its dividend for the first time since 1992 starting Q4. Intel shares plunged 26% after the data. Similarly, Amazon's Q2 revenue and operating profit growth slowed to 10% and 91% respectively, still above expectations, but its Q3 revenue guidance of at least 8% growth would be the slowest in over a year, and operating profit guidance slowed sharply to less than 3% growth, raising concerns about AI spending impacting profits.
As of Press Time, Japan Stocks Continue to Fall, Once Down Over 15%, Then Rebounded Slightly
Hit a Low of 30,423 Points
US Equity Futures Also Extend Last Friday's Decline
Not sure what to say. Best of luck.
Risk Warning: The views in this article are for reference only and do not represent investment advice. Market risk exists; invest with caution.
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