Japan's equity markets experienced a seismic shock today, with the Nikkei 225 index suffering its largest points drop in history. The plunge was triggered by a combination of factors, including concerns about the US economy and the yen carry trade.
The Crash:
Nikkei 225: The benchmark Nikkei 225 index plummeted 12.4% today, wiping out 27% of its value since its peak on July 11. This drastic decline puts the Nikkei into bear market territory.
Yen Carry Trade: The yen carry trade, a popular strategy where investors borrow in low-yielding yen to invest in higher-yielding assets elsewhere, has been under scrutiny. The recent appreciation of the Japanese yen (by 10% in the last three weeks) raised fears of large-scale unwinding, affecting global markets.
Stocks Hit the Hardest:
Several key stocks bore the brunt of the crash:
- Tokyo Electron: The chip-making equipment manufacturer tanked 8.4%, significantly impacting the Nikkei index.
- Fast Retailing (Uniqlo): The owner of Uniqlo saw a 4% decline.
- SoftBank Group:The technology investor lost 6.9%.
- TSMC (Taiwan Semiconductor Manufacturing Company): In Taiwan, TSMC, the world's largest chip maker, dropped a staggering 9.8%.
Conclusion
Markets are pricing in a 60% chance of an emergency cut in rates by the Fed this week. Note: markets often get things wrong!
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