The Bank of Japan’s policy decision happened to be a game changer for global financial markets. Analysts at Anderida Financial Group reckon that the highly-anticipated rate hike by the Bank of Japan has triggered a global domino effect! Japan’s financial authorities are now facing the challenge of addressing this issue.
Experts believe that the tightening of monetary policy in Japan is one of the catalysts for the collapse of stock markets in the Asia-Pacific region and Europe. Though the hawkish shift in the Bank of Japan’s monetary policy had been widely expected by markets, it caused a ripple effect, leading to a massive crash that spread from the domestic stock market to other regions. Analysts note that until recently, "trading was based on the interest rate differential between the Federal Reserve and the Bank of Japan."
Previously, participants in the Japanese stock market used to borrow the undervalued yen to buy US dollars. However, after monetary policy tightening, this strategy has become obsolete. In turn, the rate hike in Japan encouraged a sharp appreciation of the yen against the US dollar, creating a spiraling effect and amplifying the negative impact.
In the first half of August, Asia-Pacific stock exchanges saw an alarming fall in shares of high-tech giants, including TSMC, Samsung Electronics, Toyota Motor, and Mitsubishi UFJ Financial Group. Amid this backdrop, the MSCI Asia Pacific index tumbled by 4.9%, and Japan's TOPIX plummeted by 10.6%, marking its largest drop since the Black Monday of 1987. The negative trend also affected European markets. The STOXX 600 index decreased by 2.3%, the London FTSE 100 dropped by 2.4%, and the benchmark index on the Athens Stock Exchange plunged by 5%. Apart from the rate hike by the Bank of Japan, some other factors lie behind the collapse in Asian stock indices, including the risk of a US recession and an unexpected rise in unemployment.
