By Laura He, CNN
3 minute read
Published 1:51 AM EDT, Fri August 2, 2024
A man looks at an electronic board displaying stock prices in Tokyo on August 2, 2024. Kazuhiro Nogi/AFP/Getty ImagesHong KongCNN —
Japan’s Nikkei 225 suffered major losses for a second straight day on Friday with traders expecting the country’s central bank to further tighten monetary policy.
The Nikkei 225 sank 4.5% on Friday, extending a global stock rout that started following the release of weak US economic data. That’s after the benchmark ended 2.5% lower on the previous day. The index is now heading towards its lowest level since February.
The Bank of Japan (BOJ) raised interest rates by 15 basis points to 0.25% on Wednesday, its second hike this year, and announced plans to taper off its policy of bond buying. The announcement marked a fresh ongoing effort by the BOJ to normalize its monetary policy after more than a decade of debt-buying. Traders expect more rate hikes to come later this year.
“The BOJ made a hawkish shift after its surprising 15 (basis point) rate hike,” said Ken Cheung, director of foreign exchange strategy at Mizuho Securities. “Importantly, the BOJ flagged the inflation upside risks … and left the door open for further rate hikes. ”
The hike has narrowed the difference in interest rate between the United States and Japan, which pushed the Japanese yen higher against the greenback. The yen’s short positions continued to unwind, meaning short-sellers closed their positions on the yen, with the dollar falling by more than 4% against the Japanese currency since the middle of last month.
On Friday, the dollar rebounded slightly against the yen, up 0.1% to 149.57.
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“The risk of rising yen volatility threatens the decade-long bull market of Japanese equities,” Frank Benzimra, head of Asia equity strategy at Societe Generale, said in a research note on Thursday. He added that a rapid appreciation of the currency would hit profits at the country’s exporters.
The yen has broadly weakened over the past four years. It was down 40% against the US dollar and down 30% against the euro during that period.