Japan’s Nikkei 225 index registered its biggest ever daily fall on Monday, plummeting by over 12 per cent and continuing the extraordinary collapse that began last Friday. Meanwhile, the Yen, which had been slowly eroding in value for months continued its dramatic resurrection moving from 162 to the dollar to under 140. At the time of writing, a technical rebound seems to be underway – but such volatility is alarming. After years of nothing very interesting happening to the Japanese economy, such upheavals have stunned locals and provoked urgent questions about causes and consequences.
As to what has caused this, most are pointing to the Bank of Japan’s surprise interest rate hike last week coupled with the ripple (more like tsunami) effect of negative economic data from the US and worries about a potential stateside recession. Another key factor is the unwinding of the notoriously risky carry trade, in which investors borrow in Yen and buy assets denominated in other currencies.
Younger Japanese are particularly vulnerable
The reaction to it all in Japan has been a mixture of shock, mild panic, and, from a few who sense opportunities, excitement.
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