A few weeks ago the news broke around the world about the fall of the Japanese stock market. This meant that other markets, such as the Spanish one, also had consequences, with quite strong falls. But why did it happen?
If you have followed the news, You will know that in Japan they recovered quite quickly. Even so, there are certain reasons that caused it to collapse, and those are the ones we are going to explain to you. Shall we start?
What happened in the japan stock market
If you are an investor, you know that the stock market is one of the most uncertain places there is. You can either win a lot or lose a lot. Furthermore, in many cases, the factors are not only internal, but also external, which makes it more difficult to control them.
At the beginning of August 2024 in Spain, many woke up to fateful news: the fall of the Nikkei index on the Tokyo stock market. In fact, it was not a fall that came by surprise, because in the session the previous week he had already given signs that something was happening.
Specifically, on the last day of the week it lost almost 6%, and began the following week with a historic 12,4% drop. And the whole world trembled, not only in Japan, but in the entire world.
Reasons for the fall of the Japanese stock market
For certain, we cannot tell you the exact reasons why the Japanese stock market crash occurred. But experts are beginning to glimpse some of the reasons why this happened. And one of them, The one that they consider had the most weight was the change in the Bank of Japan's policy to a more aggressive one. This consists of an increase in interest rates and reducing the purchase of bonds.
As a consequence of this new policy, there was a before and after in the carry trade of the Japanese yen. Now, you must understand that the carry trade is a strategy that is characterized by investors borrowing money in a currency that had a low interest rate. And they used this money to invest in something else with a higher return.
Transferring it to the Japanese yen, what investors did was request loans in yen, because these had low interest, and what they did was convert them into another currency to invest with higher returns.
And what happened? Well, with the Bank of Japan's policy change, by raising interest rates, it caused the yen to increase in value. And, at the same time, as the United States was lowering rates, the differential meant that the profitability was not as great, and even that, at times, there were losses.
However, this was not the only cause.
According to experts, The fall of the main chip manufacturing companies in Asia also had to do with it which caused many businesses to suffer drops of up to 20%, which was scary. And a lot.
Especially because in the Japanese stock market these companies have significant weight, especially at the local level.
Other causes of the fall of the Japanese stock market
In addition to those we have already mentioned, there are other causes related to the fall of the Japanese stock market that have had something to do with what happened.
One of them is the growth rate of the Eurozone. If you have been paying attention to it, you will know that in July it came to a standstill, slowing everything down again. To give you an idea, the composite PMI index fell to 50,2 points, when the previous month it was at 50,9 points.
This is understood as a drop in demand for products and services in the European area from international markets.
This implies that citizens consume less and rely more on national rather than international products.
If you add to that the employment data, and the fact that prices have risen, it gives quite a combo.
The big tech companies
We have talked to you a little about this topic before, but let us delve into it. As you know, the main chip manufacturing companies are going through a bad time. However, they are not alone.
Right now in the stock market they are Big Tech is experiencing a puncture, just like artificial intelligence. All of them are beginning to reflect falls, before the fall of the Japanese stock market and after. And although they have now recovered, the truth is that they have difficulties.
Volatility and lower liquidity
The summer months, that is, especially July and August, are not good months for the stock market. In fact, according to Economic Information, August is commonly called "the month of scares." And there are fewer investors, fewer investments are made and, therefore, there is less liquidity.
That makes The movements that occur are more abrupt and easier to detect. If it goes well, everything is great, but if it doesn't, things look bad.
Warren Buffett
Warren Buffett is one of the well-known personalities in the stock market. And those who move around that world a little will know it. As you know the news that he broke that he had sold Apple shares.
Actually, It's not that he got rid of all of them, he only sold a part, but considering that he is one of the owners of the company, it made everyone tremble. If Buffett was selling, with the iPhone 16 about to be released, then something was happening internally.
And of course, the drop and the -300000 billion that ended that black Monday were not long in coming.
Fear of the US situation
In fact, the country is suspected to be in recession, and we refer to this with the bad employment data that has been made public in the country. That's right, not as many jobs are being created as thought and, in addition, there is an increase in unemployment and demand for subsidies.
All this, together with American technology companies, has caused all the alarms to go off that the country is entering a recession. And taking into account that it is part of a leading world economy, it has caused a lot of uncertainty.
With all this you can now get an idea of why the Japanese stock market crashed. Although it didn't last long because he has managed to recover quite quickly. And although more surprises may still await us, for now it seems to be calmer. What do you think about it?