Japanese stocks are experiencing their largest drop since October 1987, as concerns regarding the state of the U.S. economy continue to negatively impact the market. The Nikkei index has fallen by 10.01 percent, or 3,595.30 points, now standing at 32,314.40, which is the lowest level in several months. The index has seen a significant decline since its peak in July and is on track for the largest two-day drop in history.

“The national stocks are falling solely due to concerns that the U.S. economy may be heading towards recession,” says Shoichi Arisawa, head of the investment research department at IwaiCosmo Securities.

U.S. stocks have also been under pressure as weak employment figures have heightened fears of an impending recession, leading to increased expectations that the Federal Reserve (Federal Reserve System) will implement substantial interest rate cuts in September. This outlook has negatively affected the dollar and strengthened the yen, which has risen nearly 1 percent to 145.11 yen per dollar.

“I believe the dollar-yen exchange rate will move into the range of 140-145 due to the weaker-than-expected job figures and tensions in the Middle East,” says Ryota Abe, an economist at SMBC in Singapore. “The stronger yen will also hit the Nikkei, as corporate margins will decline, given many companies did not anticipate such a sudden and sharp rise in the Japanese yen.”

The yen has increased by 10 percent against the dollar in just three weeks, partly driven by the Bank of Japan’s (Bank of Japan) interest rate hike last week. “The question now is whether we should sell stocks further or buy them back,” says Seiichi Suzuki, chief market analyst at Tokai Tokyo Intelligence Laboratory. “I believe the market will remain unstable until around October, but I would buy them back now, as the fundamental factors that lifted the index to its peak have not changed,” he adds, referring to reforms in corporate governance.

The Nikkei’s largest single-day drop occurred in 1987, when the index plummeted by 3,836 points, or 14.9 percent, in what was termed ‘Black Monday’. Currently, the benchmark is at the same level it was a year ago.

At the same time, Indian stocks saw a decline of about 2 percent during their largest intraday drop in two months, while Taiwan’s benchmark plunged by 7.9 percent to its lowest level since the end of April, marking the worst intraday decline since May 2021. Stocks in South Korea lost more than 5 percent, their largest drop since the onset of the COVID-19 pandemic in March 2020. In the Southeast Asian region, the Singapore benchmark fell by 3.6 percent, representing the worst day in over two years, while stocks in Indonesia and the Philippines lost around 2 percent.