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Markets

Japanese stocks plunge following Wall Street rout

Nikkei at 20-month low; Shanghai, Taiwan shares down on global economy fears

The Nikkei Stock Average gave up more than 1,000 points on Tuesday to close at its lowest in 20 months. (Photo by Wataru Ito)

TOKYO -- Tokyo stocks plunged Tuesday, sending the benchmark Nikkei Stock Average sliding more than 1,000 points to its lowest finish in 20 months, as U.S. policy chaos sharpens investor concerns over the health of the global economy.

Other Asian markets that were open on Christmas Day also met with selling, but losses were more modest. The Shanghai Composite Index finished down 0.9% while in Taiwan, the benchmark Taiex index closed down 1.2%.

The Nikkei ended the day at 19,155.74, down 1,010.45 or 5.0%, ending lower for the fifth straight session. It was the index's first close below the key 20,000 level since Sept.15, 2017.

Japanese financial markets were closed Monday for a national holiday.

Tokyo stocks' relative resilience this year made them more vulnerable to selling than Chinese shares, said Mutsumi Kagawa, chief global strategist at Rakuten Securities. Signs of Beijing acceding to Washington's demands on issues such as intellectual property have also raised hopes for an easing of trade tensions, and gave support to Chinese and Taiwanese stocks, Kagawa added. 

Investors rushed to the safety of Japanese government bonds, pushing down the 10-year yield to 0%, the lowest since September 2017, vs 0.04% late Friday.

Markets in Hong Kong, South Korea and much of Southeast Asia were closed on Tuesday for the Christmas holiday, along with markets in Europe and the U.S.

The immediate catalyst for the sell-off was U.S. policy confusion amid a partial government shutdown over the federal budget impasse and U.S. President Donald Trump's repeated attacks on the central bank's policy of monetary normalization. The chaos gave investors more reasons to get out of risky assets as they face a sluggish global economy.

"The stock market sell-off reflects growing investor worries about the global economy," said Norihiro Fujito, investment strategist at Mitsubishi UFJ Morgan Stanley Securities. The American economy may look strong now, but it will be overtaken by a slowing global economy next year, he said.

The U.S.-China trade war has dampened growth in China, which in turn has impacted growth in economies that depend on it, such as Germany's and emerging Southeast Asian economies.

Trump has added to U.S. policy uncertainty by tweeting on Monday that "The only problem our economy has is the Fed," in a fresh attack on the U.S. central bank's monetary tightening, raising fears over the independence of the U.S. central bank and the dollar's role as the global currency.

U.S. Treasury Secretary Steve Mnuchin also rattled markets after announcing on Monday that he had called the CEOs of the six largest U.S. banks to assure them about access to liquidity. The announcement backfired, instead arousing suspicion that there is a problem with the American banking sector.

Nobel Prize-winning economist Paul Krugman tweeted on Monday, "This is amazing. It's as if Mnuchin was trying to create a panic over something nobody was worried about until this release."

Analysts predict the market downswing has further to go.

"Weaker share prices and a higher yen are likely to hurt business sentiment," warned chief strategist Shigeki Sakaki of Nomura Asset Management Co. Sakaki cited a possible weakness in earnings at Japanese trading houses amid the global economic slowdown and weaker commodity prices. "The Nikkei recovering to the 20,000 level, should it happen, won't be sustainable" as deteriorating corporate fundamentals make equities less attractive, he added.

Overnight in New York, the Dow Jones Industrial Average lost 653.17 points, or 2.9%, to close at 21,792.20 -- the lowest finish since September 2017.

The risk-averse climate has sparked yen buying, which sent the Japanese currency to a four-month high against the dollar to 110.5 in the morning session. The yen tends to appreciate when markets roil on expectations that Japanese investors will try to reduce exposure to risky investments and repatriate money.

At midday in Tokyo, the dollar was quoted at 110.13-15 yen compared with 111.28-29 late Friday.

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