Japanese Stocks Join Wall Street in Bear Market Territory

Japan, US stocks

Japanese stocks crashed on Tuesday and officially entered bear market territory, as the rout in global equity markets intensified on Christmas. Demand for haven assets drove the yen to four-month highs against the dollar.

Nikkei Falls to the Bears

Tokyo’s benchmark Nikkei 225 plunged 1,010.45 points, or 5%, to close at 19,155.74. It was the Nikkei’s worse close since April 2017. The benchmark has dropped more than 20% from its October peak and is on track for an annual drop of nearly 16%.

Japanese markets were closed on Monday for a national holiday.

The selloff in Tokyo follows a series of massive declines on Wall Street that dragged the S&P 500 and Nasdaq Composite Index into bear-market territory.

The plunge in Tokyo came one day after U.S. stocks posted their biggest Christmas Eve selloff on record. The Dow Jones Industrial Average fell 653 points. The broad S&P 500 Index fell 2.7%, joining the Nasdaq Composite Index in bear market territory.

U.S. markets reopen on Wednesday.

U.S. Instability

Japanese and global markets are responding to renewed instability in the United States centered on monetary policy and political instability. The U.S. federal government is locked in a partial shutdown stemming from President Trump’s proposed border wall, which has blocked the passing of a new budget.

A series of interest-rate hikes by the Federal Reserve may have finally taken its toll on the markets. Fed officials earlier this month voted to raise interest rates for a fourth time this year and signaled that two more upward adjustments were likely in 2019. This was one more than what analysts had predicted.

Market participants are worried that higher interest rates will slow economic growth and place downward pressure on stock prices. That’s because the Fed is raising rates during a period of record debt and slowing global growth.

Flight to Safety

As The Wall Street Journal recently reported, investors are finding few safe havens amid the downturn, but assets such as gold and the yen have found support in recent weeks.

The price of gold shot up 1.1% on Monday to $1,271.80 a troy ounce, the highest settlement in six months. Similar gains were reported for silver. Both assets are generally viewed as a safe hedge against volatility.

Japan’s national currency, the yen, has also demonstrated haven appeal in recent weeks. The USD/JPY exchange rate referenced by the global currency markets has fallen from a high near 113.60 on Dec. 14 all the way back down to 110.13.

Bitcoin, which offers investors an alternative store of value, experienced a large relief rally into the Monday session. Prices briefly traded above $4,300 at the start of the week before falling sharply below $4,000 on Tuesday. Read more about the latest trend reversal: Bitcoin Price Plunges 10% in Market-Wide Correction.

Featured image courtesy of Shutterstock. 

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi