The benchmark Nikkei index plunged over 5 percent to a 20-month low Tuesday, tracking declines on Wall Street that began late last week amid concerns over a slowdown in the world’s largest economy, with a strong yen also hurting exporters.
The 225-issue Nikkei average ended down 1,010.45 points, or 5.01 percent, from Friday at 19,155.74, the lowest level since April 2017. The key index fell below the 20,000 line for the first time in 15 months.
Financial markets were closed Monday in Tokyo for a national holiday. The broader Topix index of all first section issues on the Tokyo Stock Exchange finished 72.64 points, or 4.88 percent, lower at 1,415.55.
“Although the U.S. economy is strong right now, traders have started to see a risk of the world’s largest economy weakening next year as the effects of Trump’s tax cuts start falling off,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.
Investors also reacted to reports over the weekend that U.S. President Donald Trump is discussing removing Federal Reserve Chairman Jerome Powell and that a partial government shutdown in the country may stretch into next year, brokers said.
“Reports that Powell may be removed fueled concerns over the neutrality of the country’s central bank. … If this actually happens then the bank will lose its power to make policies just based on financial conditions,” Fujito added.
The serious slump, which was also witnessed in other Asian markets, came despite efforts by U.S. Treasury Secretary Steven Mnuchin to calm investor anxieties.
“Mnuchin’s conversation with the CEOs of major U.S. banks and financial regulators had the opposite effect; it fueled concerns that the stock market is in a critical condition,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management Co.
On Sunday, Mnuchin spoke over telephone with six major banks such as JP Morgan Chase and Morgan Stanley to seek assurance that they have ample liquidity to support their normal operations.
His meeting Monday with Federal Reserve officials on the same subject further hurt traders’ sentiments, brokers said.
“The Trump bubble, which has brought gains in U.S. stocks and the dollar, is collapsing,” said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management Co. in Tokyo. “The more stocks fall, the more investor sentiment gets worse, so there’s more people who need to sell temporarily, such as stop-loss selling.”
Japanese stocks have been caught in a global market rout, spurred by concerns about everything from the U.S.-China trade war to global central banks’ moves to tighten monetary policy. Sentiment has deteriorated in December, with foreign investors offloading billions of dollars in the country’s shares.
“It’s just like panic selling,” said Nobuhiko Kuramochi, head of investment information at Mizuho Securities Co. in Tokyo. “The equity markets are pricing in concerns over a slowdown in the global economy and a downward revision in corporate earnings in advance. Some investors are reducing their exposure to equities in their portfolio” by increasing cash or bonds.
Kuramochi said the equity markets are approaching a “selling climax.” Yet, the markets need a catalyst, such as an end to the U.S. government shutdown or a positive outcome from trade negotiations between the U.S. and China, so any rebound may wait until after New Year, he said.