By Ankur Banerjee and Junko Fujita
TOKYO (Reuters) – Japanese shares plunged on Monday, the biggest one-day drop since the Black Monday sell-off in 1987, as global stock markets plunged last week, economic worries and concerns that investments funded by a cheap yen would be unwound.
The Nikkei stock average fell as much as 12.4 percent as Friday’s dismal jobs figures raised concerns about a possible recession, and as the yen rose to seven-month highs against the dollar, the index’s worst performance in percentage terms since the October 1987 crash.
Japanese bank stocks led the decline, sending the Nikkei into a bear market, down 27% from its peak of 42,426.77 on July 11.
From July 11 through Monday’s closing price of 31,458.42, the Nikkei has wiped out 113 trillion yen ($792 billion) from that peak market value.
“The yen’s rapid movement is putting downward pressure on Japanese equities but is also unwinding a key carry trade, as investors borrowed yen to buy other assets, mainly U.S. technology stocks,” said Kyle Rodda, senior financial markets analyst at Capital.com in Melbourne.
“We are actually seeing massive deleveraging as investors sell assets to finance their losses.”
The Nikkei lost 4,451.28 points on Monday, its biggest one-day points drop ever, surpassing the 3,836.48 points it lost on Oct. 20, 1987, when the Black Monday global stock market crash hit Japanese markets.
Japanese Finance Minister Shunichi Suzuki said the government was monitoring the markets with “great concern.”
“It’s hard to say what caused the stock price drop,” Suzuki told reporters.
Most analysts said neither interest rate expectations nor economic data could explain the severity of the sell-off, although it may have been caused by the rise in the yen, whose short-term yields near zero and steady depreciation had made the yen the financing currency for billions of dollars’ worth of investments for years.
The yen recently rose 2.5% to 142.96 per dollar, up 14% in less than a month, partly due to the Bank of Japan’s rate hike last week and the unwinding of yen-financed carry trades.
“In short, not just the currency, but the entire ‘value’ trade in Japan that has hijacked our market for two years is being reversed,” said Richard Kaye, portfolio manager at Comgest in Tokyo.
WORLDWIDE SALE
U.S. stocks sold off for a second straight day on Friday and the Nasdaq Composite index confirmed it was in correction territory after the jobs report stoked recession fears and expectations of a big rate cut by the Federal Reserve in September. [.N]
US stock futures fell sharply, signalling that Wall Street shares would fall again.
“I think the concerns about a US economic slowdown were overblown, but the market did get nervous after the Bank of Japan’s rate hike, as people felt the domestic economy was not strong enough to justify the rate hike,” said Tomochika Kitaoka, chief equity strategist at Nomura Securities.
The banking sector fell 17% and is now the worst sector among the 33 sub-indices of the Tokyo Stock Exchange.
Chip equipment maker Tokyo Electron fell 18.48% and was the biggest drag on the Nikkei. Uniqlo brand owner Fast Retailing lost 9.59% and technology investor SoftBank Group fell 18.66%.
The broader Topix fell 12.2% to 2,227.15, its lowest level since mid-October. It also fell 25% from its July 11 peak.
($1 = 142.6200 yen)
(Reporting by Junko Fujita, Ankur Banerjee and Rocky Swift; Writing by Vidya Ranganathan, Editing by Shri Navaratnam and Himani Sarkar)
