Global markets got off to a bad start this week, and Japan is partly to blame

Meanwhile, South Korea’s Kospi closed down 9% after halting trading earlier in the day.

Taiwan’s Taiex closed down 8.4% in its worst day on record and Australia’s ASX 200 closed down 3.7%.

India’s Sensex was down 3.1% at 12:48 pm local time, while the Nifty 50 was down 3%.

“We haven’t seen a day of slaughter like this, really, since the outbreak of COVID in March 2020,” Tony Sycamore, an analyst at IG Australia, told Bloomberg TV.

Hong Kong’s Hang Seng Index fell about 2.8%, and China’s CSI 300 fell about 1.3%. China’s markets have been under pressure this year due to the country’s economic woes.

In Europe, the broader Stoxx 600 fell 2.5% in late trading on Monday.

Paris was down 2.4%, Frankfurt shed 2.6% and in London, the FTSE 100 fell more than 2%.

Investors are also in the early stages before US markets open later in the day. S&P 500 futures were down 2.8% at 2:11 am ET, while Dow Jones Industrial Average futures were down 1.6%. Nasdaq 100 futures were down 4.8%.

Bitcoin is down 14% in the last 24 hours.

US stocks’ indifference ahead of the opening week came after recent sales of technology stocks fell due to artificial intelligence, as investors wondered whether they would see earnings. when.

A weak July jobs report from the US added to the gloom of investors, which led to a selloff in US stocks on Friday, just days after the Federal Reserve kept interest rates as well.

But it’s not just the US economy and the Fed weighing on markets. It also refers to Japan’s interest rate hike last Wednesday, which IG’s Sycamore told Bloomberg TV “was the straw that broke the camel’s back.”

Global trade is becoming easier

The Bank of Japan raised its interest rate from between 0% and 0.1% to 0.25% on Wednesday – the highest level in 15 years.

The increase appears small but significant because the yen has been the focus of the auto trade, where dealers profit from interest rate fluctuations around the world. Since the change in foreign exchange markets is huge – it reached a record of $ 7.5 trillion per day in April 2022, according to a three-year study. – the effect can be great.

Japan has kept interest rates very low for decades after a property boom in the 1990s contributed to a permanent recession. It continued to keep interest rates low after the pandemic, unlike other major banks that began hiking them.

This created a divergence in monetary policy that affected the Japanese yen, which fell to a four-year low against the strong US dollar last month.

This difference has helped the business, which, as ING analysts explained on Monday, has been a successful investment strategy this year.

It involves “borrowing cheaply against the yen – with the expectation that the yen will continue to fall – and investing in certain high-yielding currencies or assets backed by strong macro volatility,” analysts said. ING added.

However, this strategy is already paying off, as last week’s BOJ rate sent the yen higher – up 7.5% over the past five trading days and down 1.6% against the dollar in so far this year.

On Monday, the yen rose about 3.3% to 141.70 per dollar, a level last seen in January.

The BOJ’s rate hike also prompted some risk-off sentiment in global stock markets.

ING analysts wrote in a separate note dated July 25: “There is no doubt that the unwinding of yen shorts is contributing to the volatile environment around the world.”

There is still a lot of water ahead, especially for riskier assets, said Vishnu Varathan, Mizuho Bank’s chief economist for Asia excluding Japan on Friday.

He added: “The dark clouds of negative feelings between the elimination of the ‘first’ and the infection of the ‘danger from’ cannot be ignored.