Tokyo has been hit with a “Black Monday” as global market appear to be in meltdown on Monday and the Nikkei 225 experiencing their worst ever selloff.
There are fears the US recession and stock market losses could spill over into European stock exchanges as the UK FTSE 100 is down more than 2%, the FTSE 250 dropped by over 3%.
Germany’s Dax was down 1% and other exchanges in Europe such as Spain, Portugal and France were all hit.
At the close on Monday Tokyo’s benchmark index was down 4,452.28 points or 12.40% which is the biggest since “Black Monday” which saw a decline in global stock on 20 October 1987.
In Asia there has been panic selling, with Indonesia, Thailand, Singapore and the Philippines who were all hit with falls of 2% and 3%.
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The Japanese government are monitoring the situation and the finance minister Shunichi Suzuki warned he has “grave concerns.”
CNBC business presenter Karen Tso told Sky News what the stock market turmoil could have on interest rates, she warned that there is a “very big market event playing out.”
Tso told Sky News, “The consequences are huge because it’s not just the Fed we’re talking about here.
If this is the case and we’re talking about a change to monetary policy in the US, it could mean other central banks from the ECB to the Bank of England to beyond could be talking about more aggressive rate cuts.
She added, “It’s causing finance ministers to come out from Japan to Thailand to talk about just how resilient these markets are,” she said.
“They are coordinating action, they are concerned, and they’re broadcasting that to some of the market participants.”
Kyle Rodda, senior financial market analyst at capital.com, said, “The markets are in meltdown and it’s a sea of red across the world. There are a lot of moving parts, but this is the essence of things: a looming slowdown in the US economy has cast doubts about global economic growth.
“The move has triggered a sell-off in the US dollar and a rally in the yen, the latter of which was boosted by the BOJ’s [Bank of Japan’s] decision to tighten policy last week and a subsequent short-squeeze.
“The rapid move in the yen is putting downward pressure on Japanese equities, but it’s also driving an unwind of a major carry trade – investors had leveraged up by borrowing in yen to buy other assets, chiefly US tech stocks. We are basically seeing a mass deleveraging as investors sell assets to fund their losses.
“The rapidity of the move has caught a lot of investors off guard; there’s a lot of panic selling now, which is what causes these non-linear reactions in asset prices to pretty straightforward fundamental dynamics.”
Tan Boon Heng, of Mizuho Bank in Singapore, said, “The scenario of higher unemployment constraining spending and further restraining hiring and incomes and economic activity leading to a recession is the feared scenario here.”
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