Japanese stock market plunges 5% as global rout gathers pace

The global stock market rout has continued in Asia Pacific with Japanese stocks plunging nearly 5% as investors continued to dump risky assets amid uncertainty about the stability of the financial system.

Tokyo recorded its biggest weekly fall for more than seven years after fears over a slowdown in the global economy and an overnight selloff in banking shares sent the Nikkei share average down by 4.84%.

After 24 hours’ respite offered by a public holiday on Thursday, the Nikkei share index sank below 15,000 points for the first time in 16 months.

The Nikkei has fallen 11.1% over the week, the biggest weekly slump since the height of the global financial crisis in 2008.

Markets across the region were caught up in the selling despite the promise of a better day when oil prices jumped 5% on comments by an Opec energy minister sparked hopes of a coordinated production cut.

South Korea’s main Kospi index ended the day 1.4% while the Kosdaq index of smaller stocks was suspended after plummeting more than 8%. The Hang Seng index was off 1% in Hong Kong.

In Australia, where shares entered bear territory earlier in the week, stocks closed down more than 1% led lower by the country’s huge banking sector. The sell-off came despite comments from the Reserve Bank governor Glenn Stevens that fears of global slump were “overdone” and that investors were panicking.

The sell-off on Friday prompted the value of the yen, gold and government bonds to soar as investors rushed to traditional safe-haven assets.

The yen was 110.985 to the US dollar on Thursday – its lowest level since October 2014 – punishing Japanese exporters, whose overseas earnings will suffer further if the yen continues on its current trajectory.

“The markets are clearly starting to price in a sharp slowdown in the world economy and even a recession in the United States,” said Tsuyoshi Shimizu, chief strategist at Mizuho Asset Management.

“I do not expect a collapse or major financial crisis like the Lehman crisis but it will take some before market sentiment will improve,” he added.

Japan has seen the worst of the selling this week. Investors are concerned that the yen has appreciated too much against the US dollar despite the Bank of Japan moving to negative interest rates.

Upward pressure on the yen has been building thanks to an increasing perception that the next move in US rates might be down after Fed chair Janet Yellen hinted that plans for another rise to add to the one in December were on hold.

The country’s automakers were among the hardest hit by the Nikkei’s fall on Friday: Toyota shares fell 6.5% and Honda’s 4.8%.

The Nikkei’s woes, coupled with the yen’s surge against the US dollar, has raised speculation that Japan is preparing to intervene to arrest the yen’s rise.

The finance minister, Taro Aso, said G20 would consider cooperating to address currency fluctuations when they meet in Shanghai later this month, but he declined to comment on possible intervention.

“We will monitor the developments in the currency market carefully and will respond appropriately when necessary,” he said, according to Kyodo News.

Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities questioned the effectiveness of Japanese intervention in currency markets.

“As long as there is speculation about intervention, speculators may test whether the (Bank of Japan) may actually act, so we are bracing for another sell-off in stocks,” he said. “If the BoJ acts, it may serve as a short-term ‘painkiller’ but the effect will likely be short-lived.”

Analysts had predicted another difficult day for Asian markets amid deepening concern that slow growth and falling oil prices could hit banks’ profits.

“The sell down of global banking stocks continued overnight, slashing share prices in Europe and trampling US indices before a late session comeback,” said Michael McCarthy, chief strategist at CMC Markets in Sydney.

“While none of the fears that have rattled markets are yet realised, the relentless focus on possible risks will likely see another soggy Asia-Pacific trading session.”