Japanese Stock Market Plunges, Nikkei Average Falls Over 2,500 Yen...US Economic Concerns and Yen Appreciation Are the Causes

The Japanese stock market, which saw its second-largest decline last weekend, experienced a temporary drop of over 2,500 yen at the beginning of the week due to concerns about a US recession. The Nikkei 225 (Japan's stock market average) opened 660 yen lower than the previous weekend and subsequently fell by over 2,500 yen at one point. This marked the first time the index has dipped below 34,000 yen in about 7 months. The release of US employment data last weekend, which fell significantly short of expectations, heightened worries about a slowdown in the US economy, leading to a sharp decline in the New York stock market. In the foreign exchange market, the dollar was sold off, causing the yen to temporarily appreciate to around 145 yen per dollar. This yen appreciation has fueled selling pressure, particularly among export-related stocks.

According to the Nikkei's market information page, the Japanese stock market has been exhibiting instability recently due to concerns about a US economic downturn. In particular, the US employment data released last weekend significantly missed market expectations, raising the likelihood of a US economic slowdown, which subsequently triggered a sharp decline in the New York stock market. Federal Reserve (FRB) Chair Jerome Powell stated that they have "seen further evidence that inflation is moving down," strengthening their confidence that inflation is declining towards the 2% target, leading to growing expectations of interest rate cuts in the market.

Amidst these circumstances, the yen has been strengthening against the dollar since the release of the US Consumer Price Index (CPI) in June. Reports of intervention by the Japanese government and the Bank of Japan also contributed to a significant drop in the dollar and a rise in the yen, leading to a sharp depreciation of the dollar against the yen.

The release of this employment data comes at a time when the dollar-yen exchange rate is at a turning point, so if the results differ from market expectations, the impact on the market is expected to be significant. Especially as attention is currently focused on weakening US economic indicators, if this employment data suggests easing labor supply-demand imbalances, the yen's buying pressure could further intensify.

If the yen appreciates sharply against the dollar, there is a high probability that the yen's appreciation against other currencies will also spread, so caution is advised against the market's sharp fluctuations following the announcement.