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Japanese stocks plunged after Asian markets opened on Monday.

The Nikkei 225 Index and the Topix Index continued to fall. As of press time, the Nikkei 225 Index had fallen by more than 6% at one point, and the circuit breaker mechanism of the Topix Index was triggered.

It is worth noting that based on today's intraday low, the Nikkei 225 Index and the Topix Index have both fallen by more than 20% from their intraday highs in July, both falling into a technical bear market.

After half a year, the Japanese yen once again broke through the 146 mark.

On Monday morning, the USD/JPY exchange rate fell below the 146 mark for the first time since February this year, and the intraday decline once widened to 0.39%. Industry insiders pointed out that in the past period of time, there has been a relatively obvious correlation between the Japanese stock market and the yen. With the adjustment of Japan's monetary policy, the upward trend of the Japanese stock market may be frustrated.

Is the interest rate hike the trigger?

Just when the global central banks were about to enter a period of interest rate cuts, Japan suddenly announced an interest rate hike, which became the fuse for the Japanese stock market crash.

Earlier, the Bank of Japan held a monetary policy meeting and decided to adjust the current policy rate of 0% to 0.1% to 0.25%. This rate hike is the first rate hike since the lifting of the negative interest rate policy in March this year. In addition, the Bank of Japan also decided to reduce the scale of Japanese government bond purchases in the next 1 to 2 years.

On March 19 this year, the Bank of Japan decided to end its negative interest rate policy and raised the policy interest rate from -0.1% to a range of 0 to 0.1%. This was the first interest rate hike by the Bank of Japan in 17 years since February 2007.

On August 1, the Japanese stock market had already experienced a round of sharp decline. A Hong Kong private equity fund manager pointed out that the interest rate hike by the Bank of Japan has increased the comprehensive cost of Japanese people's home purchases and reduced their willingness to buy homes, causing the stock prices of Japanese real estate listed companies to fall accordingly. However, in addition to some local Japanese investment institutions, there are also many overseas investors who sell the stocks of these Japanese listed companies. The reason is that the appreciation of the yen has enabled them to exchange the yen in their hands for more foreign currencies such as the US dollar, and they have decided to sell Japanese stocks and exchange foreign currencies to "lock in profits."

The Japanese yen rose above 146 for the first time in six months

At the opening of Monday, the US dollar fell below the 146 mark against the Japanese yen for the first time since February this year, and the intraday decline once widened to 0.39%.

Zhang Ming, deputy director of the Institute of Finance of the Chinese Academy of Social Sciences, and others said that in the past period of time, there has been a relatively obvious correlation between the rise of the Japanese stock market index and the depreciation of Japan's exchange rate against the US dollar. There may be two potential explanations for this. First, the depreciation of the yen helps improve Japanese corporate exports, thereby boosting the fundamentals of some Japanese listed companies. Second, the depreciation of the yen helps improve the global operations and investment performance of Japanese multinational companies.

"In other words, if the yen's exchange rate against the U.S. dollar turns from depreciating to appreciating in the future as Japan's monetary policy adjusts, then the rise in the Japanese stock market index driven by the depreciation of the yen may be difficult to sustain," said Zhang Ming and others.

However, some analysts believe that as Japan moves toward normalization after years of negative interest rates, corporate pricing power and increased wages for workers will stimulate economic growth, thus supporting the market. "The long-term underlying fundamentals remain good," said Wilfred Sit, chief investment officer of Hang Seng Investment. "Looking ahead to next year, the Japanese economy may show more signs of a gradual recovery."

Asia-Pacific markets encounter "Black Monday"

Asia-Pacific markets were generally weak in early trading on Monday.

Analysts said several Asian markets fell as sentiment was hit by a triple blow from a sell-off in Japanese stocks, a rout in global technology stocks and signs of weakness in the U.S. economy.

Traders are seeking safety amid signs the investment climate is changing. Japanese stocks are beginning to fall out of favor, with exporters taking a hit, as the prospect of further Bank of Japan rate hikes supports the yen.

Meanwhile, disappointing earnings from U.S. tech giants have cooled optimism about artificial intelligence and raised concerns about trouble at Asia’s chip giants.

In addition, analysts said concerns about a further slowdown in the global economy have unnerved traders, who are also preparing for increased tensions in the Middle East that could bring greater market volatility.

Source: 21st Century Business Herald, Shanghai Securities News, Securities Times