Crazy fall!
Just now, the Japanese stock market experienced an epic plunge, with the Nikkei 225 index plummeting nearly 7%. The Japan Eastern Stock Exchange index triggered a circuit breaker mechanism and recorded its largest daily decline in eight years. And it led to a sharp drop of over 4% in the South Korean stock market. At the same time, the US dollar has also plummeted against the Japanese yen, currently falling to around 145. The yield of Japanese five-year treasury bond bonds also declined 10 basis points to 0.475%.
It is worth noting that the US stock futures index continued to decline, with the Nasdaq 100 index futures falling by 2% and the S&P 500 index futures falling by over 1%. The yield of the US two-year treasury bond bond fell 9 basis points to the lowest level since May 2023. The cryptocurrency market has also experienced a sharp decline across the board.
So, how long will this market continue?
Release emotions
No one expected that the biggest victim of the Bank of Japan's interest rate hike would be the Japanese stock market. This morning, the Nikkei 225 index plummeted by over 7% at one point. The Japan Eastern Stock Exchange index triggered a circuit breaker mechanism when it fell. The CSI index has fallen 20% from its high point in July. The Japanese banking index fell 12%, performing the worst in the Tokyo Stock Exchange's industry classification index. Mitsubishi UFJ Financial Group's stock price fell by 21% at one point, setting a record intraday decline.
At the same time, the Japanese yen surged again, and the US dollar fell to around 145 against the Japanese yen. Japan's treasury bond bond futures triggered the circuit breaker mechanism.
Driven by the Japanese stock market, the South Korean market also experienced a sharp drop of over 4% at the opening, and Samsung's stock price fell by 5%, the largest drop since 2020. Kia Motors also fell nearly 5%, while multiple stocks such as SK Hynix, Hyundai Motor, and Selqun fell more than 3%. The US stock futures index continued to decline, with the Nasdaq 100 index futures falling by 2% and the S&P 500 index futures falling by over 1%. The yield of the US two-year treasury bond bond fell 9 basis points to the lowest level since May 2023. The US dollar index fell to around 103.
Australia S& The P/ASX 200 index opened down 2.3% on Monday. The Reserve Bank of Australia will begin a two-day monetary policy meeting on Monday. Economists surveyed by Reuters expect the central bank to keep interest rates unchanged at 4.35%, but the market will focus on monetary policy statements to clarify whether the Reserve Bank of Australia is still considering raising interest rates.
Virtual currencies have also experienced a sharp decline across the board, with Bitcoin dropping to around $58000 per coin and Ethereum experiencing a drop of over 7%. In the past 24 hours, a total of 109527 people have been liquidated, with a total liquidation amount of 360 million US dollars.
How long will the turbulence last?
So, how long will this turbulence last?
From the event perspective, the global sell-off this time is partly due to the reversal of yen arbitrage. On the other hand, it may also be related to the turbulent situation in the Middle East. Firstly, let's take a look at the yen arbitrage reversal. A financial historian believes that the main driving force of the global market is the Japanese yen exchange rate, and this trend should attract the attention of those who "fully focus on the domestic dynamics of the United States to evaluate price results".
Over the past month, the exchange rate of the Japanese yen against the US dollar has risen by about 8%, with a trading price of 148.84 yen to 1 US dollar on Friday and reaching around 145 yen this morning. This is in stark contrast to the situation on the eve of the US holiday on July 4th, when the yen to dollar exchange rate fell to 161.96 yen to 1 dollar for the first time since December 1986. The speed of the yen's rise caught many market participants off guard.
The appreciation of the Japanese yen has sparked speculation about whether this marks the end of the popular so-called 'arbitrage trading'. Arbitrage trading refers to investors borrowing low interest currencies such as the Japanese yen and then reinvesting the profits in currencies with higher returns. At present, the US stock market is clearly susceptible to the impact of the rising yen exchange rate, and changes in Japan's monetary policy are indeed having serious consequences for asset prices in the United States and the entire developed world.
Russell Napier, co-founder of investment research portal ERIC, stated that in the context of financial repression, this negative reaction in US stock prices will intensify as arbitrage traders will be forced to sell, while Japanese financial institutions will also be forced to sell their stocks as required by Japanese authorities to purchase Japanese government bonds. Due to the severe undervaluation of the Japanese yen and Japan's imminent need for financial repression, investors should not expect US stock valuations to continue rising in the face of such changes.
Napier said that the recent trend of the Japanese yen exchange rate in recent weeks and its impact on US stock prices provide some early warning indicators, indicating that it will be difficult for the US to maintain an unsustainable situation when foreign investors enter a period of capital return to the domestic market, and this trend may last for more than a decade.
On the other hand, the situation in the Middle East may also be brewing as a risk factor. After Hamas leader Haniya was killed in an attack in Tehran on July 31, tensions in the Middle East continued to escalate. Several airlines announced the cancellation of flights to Beirut, Lebanon, and many countries urged their citizens to leave Lebanon as soon as possible. On August 4th, Beirut Airport in Lebanon was bustling with activity, with many passengers preparing to depart by plane. Lufthansa, Swissair, Air France and other airlines have announced the suspension of flights to and from the Lebanese capital Beirut.
According to Global Times, Axios News quoted three US and Israeli officials on the 4th that Iran will attack Israel as early as Monday (August 5th). In recent days, the call for "revenge" has dominated Iranian media. Al Jazeera in Qatar stated that Iran is seeking to restore its deterrence against Israel without triggering a full-scale war in the region. As the situation worsens, countries such as the United States, the United Kingdom, and France are calling on their citizens in Iran to "leave as soon as possible".