Japanese stocks nose-dived to mark their biggest single day rout since 1987's Black Monday selloff, driven by last week's plunge in global stock markets, economic concerns and worries investments funded by a cheap yen were being unwound.
The Nikkei share average
NI225 shed a staggering 12.4% on Monday as Asian markets caught up with Friday's dismal U.S. jobs data and chatter of recession, and as the yen
USDJPY rallied to 7-month highs versus the dollar.
QUOTES:
BRUCE KIRK, CHIEF JAPAN EQUITY STRATEGIST, GOLDMAN SACHS, TOKYO
“You can see this correction perhaps as a by-product of what has to date been a very concentrated and momentum-driven Japan rally where foreign investors have crowded into the same narrow group of liquid stocks for an extended period.
“When that reverses … this tends to be what happens. The exporters have been hit first, and now everything else is following as risk is being flattened aggressively. It will take some time for this to play out.
JAMES SALTER, CIO AND MANAGER, ZENNOR JAPAN FUND, LONDON
“We have been warning that a stronger yen currency would initially cause indices to fall. What has been more difficult to gauge is the extent of the yen carry trade. The recent stock market losers have included banks, insurance, autos and technology companies. These are all overcrowded trades that have seen foreigner’s pile into.
“A stronger yen seems likely. This will lead to a bifurcated market where I suspect the “winners” of the last year bounce short-term but thereafter struggle. Many of these names are yen sensitive and exposed to the global economic cycle.
“Our portfolio, however, remains very domestically orientated. We will nibble at some existing names that have pulled back but are cognisant that the deleveraging may have further to go.”
SAISUKE SAKAI, SENIOR ECONOMIST, MIZUHO RESEARCH & TECHNOLOGIES
“From an economist point of view, U.S. and Japan economies aren't that bad now and the fall seems to be a quick correction of stock and currency markets that had been swollen by overseas investors. But this could cause a so-called “negative wealth effect” on Japan's household spending that could delay the consumption-led, wage growth-driven recovery scenario by crushing retail investors' confidence.”
“Younger Japanese people who just started investing this year with the introduction of New NISA (tax-free scheme) saw their Nikkei gains wiped off in the past couple of days. Younger generations are also vulnerable to the BOJ hike's mortgage impacts and may further get discouraged by the gloomier prospects shown in the stock prices.”
TRAVIS LUNDY, ANALYST, QUIDDITY ADVISORS, HONG KONG
“The fall in stock prices appears to be significantly driven by position unwinding, causing further price falls, causing cascading unwinding. Today reportedly saw lots of margin calls.
“The BOJ hiked rates on Wednesday and stocks – especially bank stocks – were up. Stocks fell on Thursday after the Ueda-san press conference moved USDJPY further but bank stocks did not fall. They were again up in USD terms. The really big move started Friday and then cascaded into Monday based on weak markets overnight and further USDJPY move.
“This appears to be a perfect storm of “risk off” related to Japan. Much less about the BOJ. Much more about tolerance for pain ahead of what was supposed to be a slow summer break.”
BEN BENNETT, HEAD OF INVESTMENT STRATEGY FOR ASIA, LGIM, HONG KONG
“Looks like a lot of trades that have done well in the first half of the year are unwinding, some more rapidly than others. I don't think the rate hike by the Bank of Japan or the US employment report on Friday justify such a big reaction, so I suspect we're seeing traders being stopped out of positions as volatility spikes.”
RICHARD KAYE, PORTFOLIO MANAGER, COMGEST, TOKYO
“The sudden narrowing of the Japan-U.S. yield gap has provoked the partial normalization of the yen, and the mistaken foreign Hot Money flows to Banks and yen plays are being rightly sold off, which is at the centre of today's and Friday's move. Domestic demands SMIDs – GMO Payment, Fast Retailing, are significantly outperforming, and up in absolute terms in dollars for the month, ahead of major global indices.
“In short, not only the currency but the entire 'value' trade in Japan which had hijacked our market for two years is being unwound – and great news for serious investors who are most of the market participants, the silent majority eclipsed by recent hot money moves.”
KYLE RODDA, SENIOR FINANCIAL MARKET ANALYST, CAPITAL.COM, MELBOURNE
“The markets are in meltdown and it's a sea of red across the world. The rapid move in the yen is putting downward pressure on Japanese equities, but it's also driving an unwind of a major carry trade – investors had leveraged up by borrowing in yen to buy other assets, chiefly U.S. tech stocks.
We are basically seeing a mass deleveraging as investors sell assets to fund their losses. The rapidity of the move has caught a lot of investors 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.”
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