US Market Plunge Shakes Japanese Stocks... Largest Drop in Over 8 Years

Yen Strengthens Amid Interest Rate Hike Possibility
Yen/Dollar Exchange Rate Drops from 155 to 152 Yen

The U.S. stock market plunged due to weak earnings from big tech companies, causing the Japanese stock market, which had been showing a synchronized trend, to also falter significantly.

On the 25th, Japan's representative stock index, the Nikkei 225 index closed at 37,869.51, down 3.28% from the previous trading day. Kyodo News reported that this was the largest drop in about 8 years and 1 month since June 24, 2016.

Semiconductor company Renesas Electronics plummeted 13.62% due to weak second-quarter earnings, and export-focused companies such as Hitachi (-9.42%) and Nissan Motor (6.98%) also saw their stock prices fall sharply.

The Nikkei 225 index fell below the 38,000 level for the first time in about three months since April 26. Just two weeks ago, on the 11th, the Nikkei 225 index had surpassed the all-time high of 42,000. Compared to that time, the Nikkei 225 index has dropped about 10%.

The reason for the significant weakening of investor sentiment toward the Japanese stock market on this day was the plunge in the New York stock market, which was highlighted by the previous day's weak big tech earnings and the controversy over the artificial intelligence (AI) bubble. On this day, the S&P 500 index and the Nasdaq index plunged 2.31% and 3.64%, respectively, compared to the previous session. The S&P 500 index recorded its largest drop in 2 years and 9 months since October 15, 2022, and the Nasdaq index since October 7, 2022.

Additionally, the possibility that the Bank of Japan (BOJ), Japan's central bank, will raise the benchmark interest rate at the monetary policy meeting scheduled for the end of this month caused the yen to surge, which analysts say also acted as a negative factor for the Japanese stock market. The yen-dollar exchange rate fell to the 152 yen level per dollar in the Tokyo foreign exchange market in the morning, marking the lowest level in about two months (yen appreciation). The yen-dollar exchange rate was at the 155 yen level just the day before, dropping nearly 3 yen in one day.

Masahiro Yamaguchi, a market analyst at Mitsui Sumitomo Bank, commented on the recent situation of the Japanese stock market, saying, "A general correction is occurring, and risk aversion sentiment is increasing."