The Japanese government and the Bank of Japan (BoJ) will continue to closely monitor major fluctuations in the financial market.
Japanese Vice Minister of Finance for International Affairs Atsushi Mimura said on August 6 that the Japanese government and the Bank of Japan (BoJ) will continue to closely monitor major fluctuations in the financial market in recent days and do “everything possible” regarding economic and financial management.
The headquarters of the Bank of Japan (BOJ) in Tokyo. Photo: EPA/TTXVN
Mr. Atsushi Mimura made the statement after a meeting with senior officials from the Ministry of Finance, the BoJ and the Financial Services Agency of Japan. According to Kyodo news agency, the meeting took place in the context of Japan’s stock and currency markets witnessing volatile trading sessions in the past two days.
On the stock market, at the end of the trading session on August 6, the Nikkei 225 index of the Tokyo Stock Exchange increased by more than 3,217 points, equivalent to 10.23%, compared to the previous closing time, to 34,675.46 points. This is the largest increase of the Nikkei 225 index since the previous record increase was recorded on October 2, 1990.
The strong recovery was thanks to massive buying activities after the global market sell-off in the trading session on August 5, causing stocks to plummet to a record level. Data on the US service sector showed a recovery in July, helping to ease concerns about the possibility of the economy falling into recession after the unemployment rate increased sharply last month.
Data released by the Institute for Supply Management (ISM) on August 5 showed that the US services purchasing managers index (PMI) rose to 51.4 in July, from 48.8 in June, the lowest level since May 2020. A PMI above 50 indicates growth in the services sector, which accounts for more than 66% of the US economy.
Although he did not specify the cause of the fluctuations in the financial market, Mr. Atsushi Mimura mentioned investors’ concerns about the risk of economic decline and risks from tensions in the Middle East.
According to him, the exchange rate between the yen and the USD reflects the fundamentals of economic activity and is in a stable state. And this is also the basic view for all current market monitoring and assessment activities.
Meanwhile, Japanese Finance Minister Shunichi Suzuki also reassured by affirming that the government will closely coordinate with relevant agencies to monitor and analyze developments in the financial market. Minister Suzuki said that it is important to acknowledge the economy’s resilient recovery while responding to changes in the market.
The Nikkei index on the Tokyo Stock Exchange closed down 12.4% on August 5, 2024, marking the largest point drop in history. Photo: Kyodo/TTXVN
Meanwhile, the yen is recovering strongly, up 12% compared to less than a month ago, when the currency was at its lowest level in 37 years.
These market fluctuations reflect changes in monetary policy. Over the past 18 months, the yen has fallen sharply as the US Federal Reserve (Fed) raised interest rates, while the BoJ “stayed still”. At that time, the carry trade, in which investors borrow cheaply in yen to make higher-yielding investments in dollars or euros, flourished, weakening the yen further.
The weak yen boosted Japanese companies’ overseas profits and attracted foreign investors to the Japanese stock market. Foreign investors bought a net 9 trillion yen ($60 billion) of Japanese stocks in 2023 and the first half of 2024.
However, the current situation is completely different. The BoJ has taken small steps to tighten policy. On July 31, the BoJ raised interest rates from around 0.1% to around 0.25%. In contrast, the Fed is expected to start cutting rates soon. Those expectations were heightened on Aug. 2 after the U.S. jobs report showed the economy added just 114,000 jobs in July, below the 175,000 expected by investors.
The yen strengthened to 141 yen per dollar, its strongest level in seven months. It had earlier risen to 146 yen from 148 yen in New York trading on Aug. 2 after the U.S. reported a “weaker” July jobs report that stoked fears of a recession.
The yen’s surge has fueled a stock market crash. Japanese exporters have traditionally benefited from a weaker yen because they generate most of their revenue overseas but report their earnings in yen.
Now they are in trouble. In the stock market, margin trading—trades made with borrowed money—hit its highest level since 2006 before the sell-off. These leveraged investments are now being cut back rapidly.
That’s why