Investing.com - The Topix and Nikkei 225 Stock Average fell more than 7% in Monday morning trading in Tokyo, marking a significant three-day decline that surpasses anything seen since the Fukushima nuclear meltdown in 2011. This drop has pushed both indices into bear market territory, causing a circuit breaker to halt Topix futures trading for about 10 minutes.
Investors have been unloading assets rapidly to offset their losses. The speed of the downturn has led to panic selling, resulting in dramatic drops in asset prices based on straightforward market fundamentals.
Since the Bank of Japan raised interest rates on July 31, all 33 industry groups have been trading lower amid concerns about the earnings outlook for exporters caused by a stronger yen. Even sectors such as insurers and banks, which were initially expected to benefit from higher rates, have experienced significant losses. Mitsubishi UFJ Financial Group Inc (TYO:8306) shares fell as much as 21%, their largest intraday decline on record.
This widespread selloff has been reinforced by a significant downturn in the US market, particularly in tech stocks. The recent trends have drastically revised expectations for Japanese equity returns for the rest of the year.
Signs of economic weakness in the US led to a significant drop in Wall Street stock prices and a decline in Treasury yields. Nonfarm payrolls increased by only 114,000, one of the weakest gains since the pandemic, and previous months' job growth estimates were revised lower. The unemployment rate rose for the fourth consecutive month to 4.3%, heightening recession concerns.
Foreign investors, who had been key players in driving the recent market rally, sold ¥1.56 trillion ($10.7 billion) in Japanese stocks and futures combined during the week ending July 26. This was accompanied by the Topix falling more than 5%, marking its most substantial decline in the past four years.