Following a change in BoJ policy, stocks are down and the yen is up. Let’s learn more in detail about why Japan’s market crashed & how this move affects other countries markets.
Japan’s market crash- Some noteworthy takeaways from the day’s events:
- The Nifty50 dropped approximately 220 points and the Sensex nearly 700 points during intraday trading.
- Of the Nifty50’s 50 stocks, 39 saw declines. Adani Enterprises, TCS, Reliance Industries, Axis Bank, and IndusInd Bank posted the most gains, while SBI Life, Eicher Motors, UPL, Tata Motors, and Hindustan Unilever posted the worst losses.
- Today’s trading session saw losses for all 15 Nifty Sectoral indices. Nifty PSU Bank (-1.57%), Nifty Auto (-1.52%), and Nifty Realty (-1.44%) had the lowest results out of the group.
- The India VIX, a gauge of Nifty volatility, increased 5.44 percent to 14.99. Broader markets also experienced selling pressure. The Nifty Mid Cap 100 and Nifty Small Cap 100 both experienced final declines of 0.87 and 0.75 percent, respectively. Amid the Mid Cap 100’s 100 equities, 40 saw gains, 59 saw losses, and 1 had no change.
- The biggest gainers were Max Health, IPCA Lab, and Cummins India, while the top losers were Godrej Properties, Bank of India, and MFSL. In the latter, two stocks remained constant, 34 stocks increased, and 64 stocks decreased. Deepak Fertilizers and Angel One were the greatest losses, while Chemplast Sanmar, Balrampur Chini, and IIFL were the winners.
- On Tuesday, 3,657 equities were traded on the BSE; 1,672 of those stocks saw gains, 1850 saw declines, and 135 saw no change. 32 stocks reached their 52-week lows, while 133 stocks reached their 52-week highs.
- On Tuesday, the rupee lost 13 paise to close the day at 82.75 (provisional) against the US dollar as investors were wary due to a downward trend in domestic equities and rising crude prices on the international markets.
- Additionally, the local unit was negatively impacted by increased forex outflows and a declining interest in riskier assets, according to forex dealers. However, a steep decrease in the greenback against main rivals overseas reduced the rupee’s loss, they added.
- At the interbank foreign exchange market, the local currency started weakly versus the US dollar at 82.69, with an intraday high of 82.69 and a low of 82.88. It ultimately lost 13 paise from its previous level of 82.62 to conclude at 82.75 against the US dollar. PTI
- The Dow futures were trading at 32,733.10, down 24 or 0.7%, while the Singapore-based SGX Nifty was down 61 points or 0.33 percent at 18,426.
- Day 2 of the KFin Technologies IPO has begun. Retail investors have subscribed for the issue 0.36 times, making up 0.12 times the total subscription. The IPO for Elin Electronics began today. At the time this report was filed, the issue had a total subscription rate of 0.17 and a retail subscription rate of 0.27.
- Silver and gold futures for February and March on the MCX were strong. The price of the latter increased by Rs 1500 per kg, while the former increased by Rs 467 per 10 grams.
How Does Stock Market Crash Happen?
A stock market collapse is a sharp decline in stock prices that is frequently unplanned. A huge catastrophe, an economic downturn, or the burst of an extended speculative bubble can all have an impact on the stock market. A stock market crash can also be greatly influenced by public outrage over it, which can result in panic selling that drives prices even lower.
Famous stock market collapses include those that occurred in 1929 during the Great Depression, on Black Monday in 1987, in 2001 when the dotcom bubble burst, in 2008 during the financial crisis, and in 2020 during the COVID-19 pandemic.
Awareness of Stock Market Crash
Even if there isn’t a set criterion, stock market crashes are typically thought of as a dramatic double-digit percentage decrease in an index of stocks over a few days.
The economy is frequently significantly affected by stock market crashes. Two of the most frequent methods for investors to lose money during a market crash are by selling shares immediately following a sharp decline in price and by purchasing an excessive number of equities on margin before one.
The 1929 market crash, which was brought on by an economic downturn and panic selling and precipitated the Great Depression, and Black Monday (1987), which was primarily brought on by investor fear, are two well-known stock market crashes that occurred in the United States.
The housing and real estate markets experienced yet another significant fall in 2008, which gave rise to the Great Recession. The reason for the May 2010 flash collapse, which caused the stock values to drop by trillions of dollars, was found to be high-frequency trading.
Due to the COVID-19 coronavirus pandemic that began to spread in March 2020, financial markets all around the world experienced a drop in the bear market territory.
Why bank of Japan’s market crash?
The 2023 trade is shorting the Bank of Japan (8301.T). A sudden rise in benchmark interest rates might cause gyrations in Japanese bond yields, forcing leveraged domestic businesses to sell off foreign assets and upset global markets.
While portfolio rebalancing is already in progress, it will take a lot of incredibly positive news to come out of Japan for the move to have a negative impact elsewhere.
What will happen when the central bank finally modifies its “yield-curve control” strategy, or YCC, which has decreased government bond yields for more than six years, is the question on traders’ collective minds.
Cross-border claims on Japan were $4.2 trillion at the end of June, according to the Bank for International Settlements, three times as much as liabilities. The nation is the only largest holder of U.S. Treasury bonds. According to Nomura, Japanese companies own $6 trillion worth of foreign assets, half of which are unhedged.
The BOJ declined to follow when the US Federal Reserve started raising interest rates in 2022 because Japanese inflation, excluding food and energy, is still below its objective of 2%.
Skeptical bond traders tested the 0.25% 10-year rate that the central bank promised to protect as the disparity between yields on 10-year U.S. Treasury notes and similar Japanese government securities grew. The yen also fell.
Yen’s Declination
As a result of the yen’s decline, hedging costs increased, compelling Japanese businesses—in particular, insurers—to unwind offshore positions.
BOJ Governor Haruhiko Kuroda, who will retire in April, is the man behind YCC. If prices other than those for food and energy continue to rise, his successor might feel more liberated to make changes to the system.
The case for normalizing interest rates may be strengthened if springtime negotiations result in a bigger-than-expected wage increase that convinces officials that salaries are compensating for increasing prices. Investors who used local debt securities to secure offshore loans may face difficulties if government bond values decline.
However, a messy unwind is still improbable. The yield spread has decreased and the yen has rebounded as a result of Fed Chair Jerome Powell and his colleagues suggesting gradual rate increases.
Nomura calculates that a manageable $500 billion could leave foreign assets if Japan’s net abroad position returns to its pre-BOJ quantitative easing level.
Higher interest rates, meanwhile, would enable Japanese businesses to profit more from their 325 trillion yen ($2.4 trillion) cash hoard. In 2011, Japan had an earthquake, tsunami, and nuclear catastrophe without triggering a global financial crisis. Investors who placed bets on meltdowns have already been let down.
Today’s Indian Stock Market News
Japan’s market crash- Frontline indices worldwide experienced a Tuesday drop as a result of the Bank of Japan’s decision to increase its yield target range.
The S&P BSE Sensex and NSE Nifty50 fell on this news, and the situation on the Indian stock market was no different. The Nifty50 was trading over 172 points or 0.94 percent lower at 18,247.90,
while the Sensex was trading at 61,243.93 and was down 562.26 points or 0.91 percent. Nifty Bank, a financial indicator, was trading at 43,083.75.
FTSE 100 continues to decline, Petrofac drops 10%
Today’s market moves were significantly impacted by an unexpected change in Japan’s monetary policy as the pre-Christmas flight from risk assets continued.
Although the Bank of Japan (BoJ) held interest rates steady, it caught traders off guard by allowing the maximum yield on 10-year government bonds to increase from 0.25% to 0.5%.
According to Deutsche Bank, the action suggested that Japan’s ultra-loose monetary policy may be coming to an end. This is because Japan has been an anomaly when compared to other central banks that are starting the biggest tightening cycle in a generation.
Henry Allen, a strategist, continued, “It’s crucial not to underestimate the impact this could have because tougher BoJ policy would remove one of the remaining global anchors that have assisted in maintaining low borrowing prices more generally.” The Nikkei 225 closed more than 2.5% lower in Tokyo as the currency increased and technology firms plunged.
“The decision is being viewed as a sign of testing the water, for a prospective removal of the stimulus which has been injected into the economy to try to stir demand and wake up prices,” said Susannah Streeter, senior markets analyst at Hargreaves Lansdown.
After an increase in Covid cases fueled worries about China’s economic future, the developments increased pressure on Asian markets. Following the US Federal Reserve’s hawkish interest rate estimates from last week, Wall Street is likewise on a four-day losing streak.
The FTSE 100 index began the month around 7570, but the anticipation of a Santa bounce has long since subsided, leaving the top flight close to 7300 just after today’s opening bell.
Later, the benchmark rebounded to 7349.37, a decrease of 27.48 points, although yield-sensitive companies in the real estate sector were under pressure as Land Securities fell by 2%, or 14.8p to 600.8p and Segro by 14.2p to 750.6p.
Japanese central bank governor Statement
| Bank of Japan Governor Haruhiko Kuroda said the central bank will not hesitate to further ease its monetary policy if it’s necessary as the economy faces many uncertainties, he said in a press briefing. He added that it’s too early to debate an exit from the current policy and that strategies for an exit should be discussed at policy meetings if the economy nears the central bank’s inflation target of 2%. – Jihye Lee |
The Bank of Japan announces unexpected bond-buying activities
| The Bank of Japan made an offer to buy 600 billion yen worth of one- to three-year-old Japanese government bonds. The central bank previously announced that it would expand its outright purchases of JGBs from the previously anticipated 7.3 trillion yen per month to approximately 9 trillion yen per month from January till March. The 10-year JGB yield increased earlier by 20.5 basis points to 0.455%, the highest level since 2015.
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The Bank of Japan maintains rates while expanding the yield curve control band.
| In a statement, the Bank of Japan stated it will change the yield curve control band while maintaining its benchmark interest rates. The BOJ announced that it would increase the current plus and minus 0.25 percentage point range of 10-year Japan government bond rate fluctuations to plus and minus 0.5 percentage points. The goal of the change, according to the BOJ, is to “enhance market functioning and support a smoother development of the entire yield curve, while preserving accommodating financial conditions.” The Japanese yen strengthened more than 2% to stand at 133.37 against the U.S. dollar after the announcement. |
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Lavanya (Senior Editor) is a full-time content writer with almost 5 years of experience and a part-time teacher. She joined Medico Topics on the Breaking News trainee scheme in 2022 and now works on MedicoTopics.com. As a lifelong learner, She is constantly curious about learning new things and passionate about sharing knowledge with people through her writing and teaching.