Japanese markets experience largest two-day rout since 2011 Tsunami

Nikkei nosedives: Japan's Nikkei share average plummeted nearly 6 per cent on Friday, marking its worst session in more than four years. Concerns about a potential US economic slowdown and uncertainties surrounding the Japanese central bank's monetary policy path dampened investors' appetite for risk assets.

The Nikkei closed 5.81 per cent lower at 35,909.7, its lowest since 26 January and the largest one-day percentage decline since March 2020. The broader Topix fell 6.14 per cent to 2,537.6, also experiencing its biggest one-day drop since March 2020.

From a record high set in July, the Topix has fallen 6.1 per cent, culminating in a two-day drop of 9.2 per cent following the Bank of Japan’s earlier-than-expected rate hike on Wednesday and Governor Kazuo Ueda’s hawkish stance. The decline has pushed both the Topix and the Nikkei 225 Stock Average into technical correction territory.

"This might be temporary, but Japanese stocks are in their worst situation," said a Chief Fund Manager at Mitsubishi UFJ Asset Management told Bloomberg. Shares of Mitsubishi UFJ Asset Management itself fell as much as 12.41 per cent on Friday.

"Momentum in the US market turned negative overnight, with concerns about recession rising. That weighed on Japanese equities a lot today," noted Yugo Tsuboi, Chief Strategist at Daiwa Securities which was among the biggest losers for the day on Nikkei.

"In Japan, the market is uncertain about whether the BOJ will raise interest rates again this year and by how much," Tsuboi added, highlighting that higher rates could strengthen the yen, potentially hurting exporters.

The recent sharp decline in Japanese stocks coincides with the yen’s surge to a four-month high against the dollar, adversely affecting exporters. Analysts indicate that investors have been taking profits on financial stocks, which had previously been Topix’s best performers due to expectations of benefiting from higher interest rates. The equity gauge tracking the banking sector sank by 11 per cent.

This dramatic market shift underlines the broader economic uncertainties and the impact of central bank policies and their direct impact on markets such as Japan.

(With Reuters inputs)