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Japanese stocks plunged heavily on Monday, causing major indices in the country to experience their third consecutive session of significant declines as global markets react to the possibility of a US recession.
Japan’s broad Topix index dropped by as much as 7.3%, while the Nikkei 225, which suffered a major fall on Friday, was down by 5.9%.
Traders in Tokyo anticipate that the sell-off in Japan will continue in Europe and the US as investors brace for increased volatility due to concerns about the US economy cooling down and the potential need for interest rate cuts by the Federal Reserve.
Global funds are engaging in a major correction and de-risking strategy, with Japan-specific factors exacerbating the situation, such as the impact of a stronger yen on earnings.
Other Asian markets, including South Korea’s Kospi and Australia’s S&P/ASX 200, also experienced significant declines in response to weak US jobs data and investor worries about a US economic slowdown.
The sell-off extended beyond Japan, affecting other Asian markets as well. South Korea’s Kospi benchmark fell by over 4% in early trading, while Australia’s S&P/ASX 200 dropped by nearly 3%.
Investors are grappling with the sudden change in narrative following the weak US jobs report, with many now questioning whether the US is entering a more severe slowdown period.
Market reaction to the jobs data has raised concerns that the Federal Reserve missed an opportunity to cut rates, prompting calls from Wall Street strategists for rate reductions in the upcoming meetings.
The Vix index, a measure of expected stock market turbulence, surged to its highest level since last year’s regional banking crisis, reflecting heightened uncertainty among investors.
As richly valued big-tech stocks experienced a sell-off, the Nasdaq Composite index fell by 3.4% last week, while Treasuries rallied amid the market turmoil.