Japan’s Nikkei 225 Stock Average slid into a bear market over fears of a widening trade war, while the government sought to pull together a wide-ranging deal to negotiate with Washington on US tariffs.
The blue-chip index closed 7.8% down on Monday, taking its loss from its December peak to 23%. The broader Topix index also sank, with electronics makers and banks weighing on the benchmark as Japan’s economic outlook darkened.
It’s the first time the Nikkei has entered a bear market since August, when an unexpected rate hike by the Bank of Japan triggered a widespread market rout.
Prime Minister Shigeru Ishiba told parliament he would strongly urge US President Donald Trump to drop the planned US levies on Japanese imports, first by holding a phone call with the president. The move comes after Trump signalled that he wasn’t planning to claw back the tariffs that had roiled financial markets worldwide.
“We must make it clear that our country is not doing anything unfair,” Ishiba said.
Tokyo is scrambling to coordinate its response after being caught off guard by Washington’s move to slap a 24% tariff on its goods with effect from April 9. Its main stock gauges have trailed all other major Asian indexes this month as Beijing’s decision to impose commensurate levies on American goods stoked fears of an escalating trade war.
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“Stocks had already dropped to an extreme level, but now the market seems to be factoring in China’s retaliatory tariffs, and the fact that Trump is not backing down,” said Yusuke Sakai, senior trader at T&D Asset Management. “The situation has developed beyond a Trump ‘shock’. We’re now looking at the possibility of a global economic recession.”
Ishiba said Japan should be seen as fair and objective and added that he intends to head to the US as soon as possible. Over the weekend, he said Japan’s approach to resolve the crisis could include proposals over liquefied natural gas, cars, agriculture and national security.
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At a meeting with officials from his ruling Liberal Democratic Party on Monday to discuss the tariffs, the premier stuck to his previous approach of touting Japan’s contributions to the US economy, and refrained from suggesting retaliatory actions.
“There are things that Japan can do to help create jobs in the U.S., and in order to do this, we would like to strongly call for the elimination or reduction of tariffs,” Ishiba said.
During a summit with Trump in February, Ishiba promised to buy more LNG from the US and raise Japan’s investments into the US to US$1 trillion. He and other top officials have repeatedly touted Japan’s standing as the biggest investor in the US, including factories built by Japanese automakers that have created jobs for Americans.
Meanwhile, Finance Minister Katsunobu Kato told reporters on Monday that he’s watching market movements with a heightened sense of urgency, and called on traders to make calm and rational investment decisions.
“There are now unstable movements globally in the financial market,” Kato said. “We will continue to monitor market trends with a high sense of urgency and take appropriate measures in cooperation with the relevant ministries.”
Sliding stocks
Japanese stocks are being hit particularly hard as a stronger yen against the dollar pressures exporters, said T&D’s Sakai. Lower expectations of more rate hikes by the BOJ, due to economic worries, are also weighing on bank stocks, he added.
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The yen rallied more than 1% against the dollar on Monday, outperforming its major peers this month as the escalating trade tensions fueled demand for the safest assets.
Meanwhile, Japan’s benchmark 10-year bond yield fell nearly 10 basis points to 1.105%, the lowest in three months. Overnight-indexed swaps signaled a less than 25% chance of the BOJ raising interest rates this year, even after data showed nominal wages rose more than expected in February.
Concerns over a potential recession are fueling the risk-off mood, and are driving fears the profits of Japanese companies that do business in the US will suffer, said Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Lab.
“The moves in the market are not dissimilar to the rout in August, but that was short-lived,” said Sakai. “This time, Trump is the issue, and that can’t be so easily solved. It won’t be easy to rebound from this.”
Chart: Bloomberg
