On Tuesday, August 6, in Japan, local stock indexes showed significant growth, partially offsetting the drop a day earlier that became a historical negative record.
The benchmark Nikkei 225 index increased by 10%. The broader Topix showed growth of approximately 9%.
It is worth noting that the recovery of stock indices on Tuesday is observed in many Asian countries. For example, the South Korean Kospi showed growth of 3.3%. The value of Taiwanese shares increased by 3.4%. At the same time, the positive tendency is not total, which means. that individual indicators are not yet on the recovery trajectory after a significant drop on Monday. For example, Hong Kong’s Hang Seng index continued to show a decline, which on Tuesday amounted to 0.3%.
On Monday, August 5, a large-scale downturn was recorded in the world markets. The corresponding state of affairs is the result of the impact of several factors, including concerns related to the slowdown in economic growth in the United States, rising interest rates in Japan, and a drop in the value of shares of technology companies that have published disappointing financial statements and demonstrated in the framework of their activities that the results of investing in artificial intelligence will not be fast and also do not belong to the category of goals that can be unambiguously formulated in the form of specific expected achievements.
On Tuesday, the recovery of stock indexes after the collapse was also observed in Europe. However, in this region, the corresponding positive process turned out to be short-term. Stock indexes quickly returned to a downward trajectory. The Stoxx 600 index, the region’s benchmark, fell 0.3%. On Monday, this indicator declined by 2.2%. London’s FTSE 100 decreased by 0.3%.
In the United States, stock indexes opened higher. Futures contracts demonstrated rising during pre-market trading. Futures for the S&P 500 index grew 0.4%. Nasdaq futures increased 0.3%.
Neil Newman, head of strategy at Astris Advisory in Tokyo, says that the recovery currently seen in Japan is typical after a market crash. The expert also noted that nowadays the economic system of the Asian country is in good condition, separately underlined that the fundamental indicators continue to demonstrate stability. Moreover, Neil Newman stated that there are currently no signs of abandonment of Japanese stocks.
At the same time, the Asian country’s stock market is still experiencing short-term volatility. The corresponding situation is the result of the fact that opinions are circulating according to which the US dollar has not yet stabilized against the yen. This point of view is shared by analysts from the UBS Chief Investment Office. They expressed their opinion in a research report that was released on Tuesday. According to them, it is too early to conclude that the Japanese stock market hit bottom. Analysts say that any recovery is likely to occur only after companies from the Asian country report earnings for the first half of the current year. It is expected that the relevant information will be published in October or even in November after the presidential elections in the United States.
On Monday, the Nikkei index closed down 12.4%. This drop turned out to be the largest daily downturn since October 1987. The mentioned index lost 4,451 percentage points. This negative dynamic has become part of the global negative tendency in the markets. For Asian, European, and US stocks, last Monday was what can be called a historically bad day.
All three major Wall Street indexes showed a drop in the range of 2.6% to 3.4%. This dynamic is the result of the above-mentioned concerns that the United States economic system is on a slowdown trajectory, the pace of which exceeds preliminary expectations regarding the intensification of the corresponding process.
Global markets turned out to be in the territory of negative indicators at the end of last week. Currently, fears are growing that a recession scenario will be implemented in the space of the United States economic system. There is also the rapid unwinding of popular carry trades involving the yen.
Moody’s Analytics analysts, in a note published on Tuesday, expressed solidarity with the view that the downturn in the market is largely due to concerns that the United States economy is moving towards a recession scenario.
The global downturn has affected the value of shares of companies operating in the artificial intelligence industry. Against this background, securities of firms in Taiwan and South Korea turned out to be on a downward trajectory. These companies specialize in the production of chips necessary for the training and subsequent operation of artificial intelligence systems. Taiwanese and South Korean suppliers are the largest in the global market for high-end semiconductors used in machine intelligence apps.
For the Japanese stock market, a significant factor in the negative impact was the rapid growth of the yen. Against the background of the corresponding tendency, the export competitiveness of the Asian country producers is weakening.
On Monday, Japan’s national currency hit a seven-month high against the US dollar, reaching 143. On Tuesday, the yen fell by about 1.2%. The national currency of the Asian country reached the level of 146 against the US dollar.
The yen found itself on a trajectory of rapid growth after the Bank of Japan made several unequivocal statements in recent weeks about the so-called hawkish tilt of its monetary policy. Against this background, many market participants quickly unwind their yen carry trades, a popular investment strategy.
Japan has had very low interest rates for several decades. Within these economic realities, many investors borrow cash cheaply there before converting it to other currencies to invest in higher-yielding assets. Stephen Innes, managing partner of SPI Asset Management, says that abandoning the mentioned strategy is the starting point for market upheaval. According to the expert, Tokyo represents the epicenter of carry trade unwinds, where the ripple effects were most acutely felt, exacting the turbulence and uncertainty for traders and investors alike.
Last month, the Bank of Japan raised interest rates for the second time since the beginning of the current year. Moreover, the Asian country’s financial regulator announced plans to taper its bond buying. Traders predict that by the end of the current year, the Bank of Japan will raise the cost of borrowing once more. This point of view is based on the fact that the financial regulator of the Asian country continues to resist the inflationary process. Currently, the interest rate of the Bank of Japan is at 0.25%. This figure is the highest in the last 15 years.
Neil Newman says that the panic over the decision of the financial regulator of the Asian country, in his opinion, has ended, but the corresponding concerns remain. The expert notes that currently, the main question is whether the Bank of Japan will decide on another interest rate increase against the background of criticism of the corresponding monetary policy concept spreading in the media. Neil Newman suggests that the financial regulator will raise the cost of borrowing and the specified criticism will not be an obstacle. The expert noted that more than half of the products that Japan manufactures are sold overseas as part of the offshoring process that began in the 1980s.
Neil Newman says that for small and medium-sized companies, which employ the bulk of the Japanese workforce, the high cost of raw materials and energy, exacerbated by a weak yen, are important indicators. For this reason, the Bank of Japan may be facing pressure to bolster the national currency of the Asian country.
Japanese Prime Minister Fumio Kishida said on Tuesday that it was important to calmly assess the state of affairs in the market. He also shared an optimistic forecast regarding the development of the Asian country’s economy. In the relevant context, Fumio Kishida mentioned such a favorable factor as the first increase in real wages adjusted for inflation in more than two years. The growth of this indicator was recorded in June.
As we have reported earlier, UBS Says About Current Condition of Japanese Market.
