Japanese stocks tanked on Friday, weighed down by economic fears in the United States and the Bank of Japan’s interest rate hike earlier this week. The Nikkei Stock Average finished at 35,909.70, down 5.8%, its worst daily drop since March 2020, following record highs earlier this month.
The drop in Japanese stocks comes just two days after the Bank of Japan hiked interest rates in an attempt to strengthen the yen’s value amid rising inflation. The Bank of Japan hiked interest rates from 0% to 0.1% to the benchmark of 0.25%.
The move was surprising, given that Japanese officials usually avoid such hardline actions. In March, the bank lifted interest rates for the first time in 17 years, thereby ending its negative interest rate policy.
Japan’s semiconductor companies led the index down, with Tokyo Electron falling 12% after Intel missed earnings expectations and announced cost-cutting measures that will save $10 billion next year.
Friday’s decline was partly fuelled by signals of a slowing US economy. US market indices have plummeted over the last two days due to a slew of negative economic data points, including growing unemployment and decreasing manufacturing and construction.
US unemployment rose above expectations to the highest level in nearly a year, while the ISM manufacturing index fell to an eight-month low.
Band of Japan addresses the Fall of Japanese Stocks
In a press conference Wednesday, BoJ Governor Kazuo Ueda said that if Japan’s economy advances in line with the bank’s projections, interest rates will continue to rise. Analysts at Bank of America predict that the BoJ will raise interest rates again in January.
“Looking ahead, the market’s terminal rate expectations may rise somewhat and bring the timing of rate hikes forward,” the analysts stated in a note released on Thursday. They added, “While acknowledging the possibility of an earlier move, our economist still expects the next rate hike to take place in January.”
Others say that the market will react in response to rate hikes.
“As the likely pace of interest rate hikes becomes clearer from economic indicators in the future, we believe share price discounting will diminish,” JPMorgan analysts wrote in a report on Thursday.
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