Japan’s Nikkei tumbles 3% as US signals rate rise will come earlier

Japan's Nikkei tumbles 3% as US signals rate rise will come earlier

Japanese stocks led losses regionally, with the benchmark Nikkei Stock Average dropped to a one-month low on Monday morning after indications that the U.S. Federal Reserve could withdraw from ultra-easy monetary policies sooner than expected. 

The Nikkei index at one point fell over 1,000 points, or 3.5%, to reach its lowest level since May 20. The benchmark declined below the 28,000 mark with shares in 97% of the index’s 225 companies trading lower. The broader Topix index shed over 2%.

Tokyo’s fall tracks a retreat by Wall Street’s main indexes last week, with the Dow Jones Industrial Average declining over 500 points, or 1.6%, on Friday.

The sell-off in stocks accelerated after Fed’s Bullard estimates that initial rate increase could happen in late 2022. 

Forecasts from the Federal Open Market Committee earlier last week suggested that its first post-pandemic interest rate hike could come in 2023.

Investors have reacted strongly to the possibility of rate rises sooner than has been expected. In March, the Fed had signaled there would be no rate hike until at least 2024.

Losses were seen in most sectors in Japan, with shares of automakers such as Nissan and Honda falling more than 3% each. Shares of Fanuc slumped nearly 5%. Meanwhile among financials, Mitsubishi UFJ Financial Group shares fell 2.36% and Mizuho Financial Group declined 2.09%.

Semiconductor-related companies also took a hit, with shares in Tokyo Electron, Advantest and Renesas Electronics all dropping more than 3%. Shares in Shin-Etsu Chemical, a maker of silicon wafers, fell over 5%.

Damon Harrison
Market Analyst, IPG Group