The Tokyo stock market witnessed a sharp plunge on Monday, with the Topix and Nikkei 225 Stock Average sliding by 12%, casting a shadow of uncertainty over global financial markets.
The sharp downturn was fueled by a combination of factors, including a strengthening yen, more stringent monetary policies, and a bleak economic outlook in the United States.
Notably, the drop has pushed both the Topix and Nikkei 225 Stock Average indices into bear market territory.
Topix Index Records Largest Three-Day Decline
The Topix index recorded its most severe three-day decline in history, tracing back to data from as early as 1959.
Tech firms and financial institutions bore the brunt of the selloff on the Topix, with the yen surging over 3% against the dollar, unwinding carry trades and triggering a cascade of selling.
The banking sector felt the impact as well, with government bond yields plummeting by as much as 20 basis points, leading to multiple triggers of circuit breakers for index futures.
BREAKING: Japan’s stock-market suspends futures trade as market down 8%
— The Spectator Index (@spectatorindex) August 5, 2024
Kyle Rodda, a senior market analyst at Capital.Com, highlighted the widespread deleveraging underway, as investors rushed to liquidate assets to offset losses.
“The rapidity of the move has caught me 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,” he said.
Following the Bank of Japan’s recent interest rate hike, all 33 industry groups within the Topix index have witnessed declines, especially impacting exporters due to the yen’s ascent.
The unwinding of yen-funded carry trades, once popular in emerging markets, has added to the turmoil as investors reassess their positions amidst heightened volatility.
The recent weakness in the US economy, marked by lackluster job growth and a rising unemployment rate, has further rattled investors globally, triggering a wave of sell-offs and a shift towards risk aversion.
Meanwhile, tech stocks seem susceptible to selling pressures that have impacted Nasdaq 100 futures, which have dropped over 3.5%.
The futures for the broader S&P 500 index have declined by approximately 1.8%.
Crypto Market in Free Fall
The cryptocurrency market is currently experiencing a significant downturn, with a sharp 12.87% drop erasing over $300 billion from its total value within the last few hours.
The sell-off in cryptocurrencies has intensified during Asian trading hours, coinciding with a 12% decline in Japan’s Nikkei index early on Monday, August 5.
According to Coinglass data, over $1.01 billion has been liquidated from the cryptocurrency market in the past 24 hours, with a majority of these liquidations occurring within the last 4 hours.
Of this amount, $850 million stems from long liquidations, while $106 million is attributed to short liquidations.
Bitcoin’s price fell as much as 20%, dropping below $50,000, before trading above $52,100 at the time of writing.
Conversely, altcoins have taken an even deeper hit, with Ethereum witnessing a 20% decline and other major altcoins correcting in the range of 15-20%.
The escalating geopolitical tensions across the globe are also impacting financial markets.
