TOKYO -- Tokyo stocks traded sharply lower Monday, with the Nikkei Stock Average briefly falling below the 15,000 mark. It is the first time in about two months for the benchmark index to fall below that line during trading hours. The Nikkei index closed at 1,5005.73, down 385.83 points or 2.51%, from Friday.
There are reasons why Tokyo's bulls have turned bearish. China last week released lower-than-expected economic data that sent jitters through some emerging economies. On Friday, the Dow Jones industrial average lost 318 points, creating more risk-aversion among global investors.
Also, the HSBC China Manufacturing Purchasing Manager's Index for January, announced Thursday, came in below the boom-bust threshold of 50. This has raised concerns that emerging economies are slowing.
On the same day, the Argentine peso, the Turkish lira and some other emerging currencies plunged, giving the risk-averse bears more reason to act in haste. A president at a Japanese asset management firm said that a decrease in foreign currency reserves in Argentina and political uncertainty in Turkey caused the currencies to tumble. The causes were specific to each country, he noted. However, a sell-off of emerging currencies has begun to fuel selling of currencies in South Africa, Russia and other countries.
Japanese market players fear that the trend could bring Asia into crisis. A number of countries are already on the brink. In Thailand, political tensions between increasingly polarized factions further boiled over during the weekend.
Another tipping point could come in the U.S. Daisuke Uno, chief strategist at Sumitomo Mitsui Banking, is paying attention to whether the Federal Reserve will decide to continue scaling back its dollar-flooding quantitative easing program at a two-day meeting of the Federal Open Market Committee, which is scheduled to begin Tuesday in the U.S. A decision to continue scaling backs its dollar-printing activity will give jittery investors more reason to avoid risk on a global scale, Uno said.
If the Fed decides not to continue scaling back its dollar-pushing policy in consideration of the world's precarious economic situation, global market volatility could temporarily calm down. Japan, however, might not like the repercussions, which could include dollar selling (weakening) and yen buying (strengthening). The main pillar of Abenomics so far has been to weaken the yen.
Either way the decision goes could be bad news for Japan.
After the Nikkei average touched below the 15,000 line, market insiders began murmuring that 14,800 could be the next support level. Yutaka Miura, senior technical analyst at Mizuho Securities, noted that the Nikkei average strongly resisted further declines at this level in July, September and October.
There should be plenty of trading cues coming right from Tokyo this week, when corporate earnings announcements for the April-December period go into full swing. But a spokesman at a Japanese brokerage said market players have already begun shifting their focus to earnings forecasts for the year ending March 2015.
The earnings to be announced in the near future may have already been factored into the market. Plus, the yen's appreciation and overseas conditions could persuade investors to limit purchases of shares even in companies with solid earnings.
Even those showing continued bullishness seem less enthusiastic than the bulls that helped the Nikkei average hit its 2013 high, 16,291, at the end of last year.