Asia stock slump deepens as Japan falls most since 2020

August 02, 2024 (MLN): Japanese stocks plunged for a second day on expectations for further monetary tightening in the country, exacerbating a global selloff following weak US economic data and tech earnings, Bloomberg reported.

The Topix index fell as much as 5.7%, the most since 2020, as the yen traded near its strongest since March to weigh on Japan’s export-oriented economy.

Shares also dropped across Asia from South Korea to Hong Kong, with AI chipmaker SK Hynix Inc. tumbling 8.7%.

Meantime, Treasuries extended a rally in Asia, with the policy-sensitive two-year yields touching a 14-month low amid increased bets on rate cuts by the Federal Reserve following the central bank’s policy meeting on Wednesday.

Swaps traders raised the number of reductions this year to three from two.

The broader risk-off tone came after data showed US weekly unemployment claims hit an almost one-year high while manufacturing shrank.

The tech-led losses were inflicted by disappointing earnings outlook or results from industry behemoths such as Intel Corp. and Amazon.com Inc. The focus will now shift to the monthly jobs data later Friday.

What’s keeping investors on edge in Japan is the outlook for the nation’s central bank to hike rates further following its move earlier this week.

The Bank of Japan’s big policy shift this week makes another interest rate hike highly likely in October and raises the potential for quarterly increases, according to a former executive director in charge of monetary policy.

“The recent strengthening of the Japanese yen coupled with tech sector weakness is poised to significantly impact the Asian stock market,” said Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore. “Japanese exporters are particularly vulnerable to the yen’s appreciation, as it erodes the value of their overseas earnings.”

The MSCI Asia Pacific Index declined as much as 3.1%, the most in over two years, with tech and industrial companies among the top losers.

The S&P 500 and Nasdaq 100 futures also slid in Asia, compounding Thursday’s declines for the underlying benchmarks.

Intel said third-quarter revenue will disappoint while Amazon.com projected profits that missed analysts’ estimates, sending each companies shares lower in after-hours trading.

Treasuries advanced again on Friday, with the 10-year yield extending its decline below 4%, partly reflecting stronger demand for safe-haven assets.

The two-year note saw its yields fall one basis point, adding to the 11 basis-point drop the day before.

The yen snapped a three-day gain, a rally that had pushed the currency to around 149 per dollar.

The pound slid Thursday after the Bank of England cut rates and signaled further cautious reductions ahead. A Bloomberg dollar gauge edged higher.

Aside from the yen’s recent surge, renewed worries about the health of the world’s No. 1 economy also weighed on Japanese shares.

“I didn’t expect stocks to fall this much,” said said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Asset Management Co. in Tokyo. “This is probably because there are concerns that the U.S. economy will collapse in a big way, which is the most unpleasant pattern for Japanese stocks.”

US Jobs

Economists are expecting a moderation in job growth in the government’s July employment report due Friday. Forecasters anticipate the unemployment rate remained steady at 4.1%.

“The ‘hard landing’ genie has one foot out of the bottle, soon to be two if tonight’s non-farm payrolls disappoints,” said Tony Sycamore, analyst at IG Australia. If the unemployment rate edges toward 4.3% with job additions slowing to less than 100,000, “then all bets are off,” he said.

Elsewhere in Asia, a Chinese central bank policy adviser issued a rare critique of Beijing’s economic policies for being overly conservative, urging the government to ramp up fiscal stimulus and promote inflation.

The country’s benchmark CSI 300 stock index extended losses from Thursday following a brief rally in the previous session.

In commodities, oil rose after a Thursday decline against the backdrop of concerns Middle East tensions may impact supply. Elsewhere, gold wavered near record levels.

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