The Nikkei 225 index crashed by 4,451 points, closing over 12 percent down and shoved the index into bear market territory with a 25 percent decline since early July. Analysts are comparing the crash to the infamous "Black Monday" of October 1987, when the Nikkei dropped by 3,836 points and international markets plummeted as a reaction.
Worries over a sharp downturn in the American economy amid the less-than-ideal response to the White House's "Bidenomics" plans have incited expectations that the Federal Reserve will slash interest rates. A recent jobs report also revealed that job creation was far below expectations, and unemployment was higher than predicted. The jobs report indicates that more foreign workers are displacing Americans.
Stephen Innes, managing partner at SPI Asset Management, warned that "the aggressive bear onslaught and fears of a hard landing in the U.S. are creating a contagion effect, leading to a severe meltdown in Tokyo's markets."
Trading in Japan and South Korea was stopped as circuit breakers were activated to avoid panic selling. This market volatility reached other regions, including America where stock futures plunged sharply.
Nasdaq futures fell by four percent, while Dow and S&P 500 futures dipped by 1.5 percent and 2.3 percent, respectively.
The Stoxx Europe 600 index dropped by 2.5 percent in morning trade in Europe, reaching lows not witnessed since February. Taiwan's Taiex, South Korea's Kospi, Australia's S&P/ASX 200, Hong Kong's Hang Seng Index and China's Shanghai Composite also registered huge losses.
Oil prices also struck their worst levels since January, and cryptocurrencies such as Bitcoin had their values reduced by over 12 percent. Low U.S. tech earnings along with China's feeble manufacturing data are aggravating the situation. (Related: Stock markets plunge around the world as fears over weak U.S. economy spark financial panic.)
Japan elevates benchmark interest rates for only the second time in 17 years
That strategy was exposed after Japan elevated benchmark interest rates for only the second time in 17 years and indicated that such rate hikes may persist.
"I don't think it's a civilization-altering crash. It's just to me a simple case of market participants getting way ahead and, I guess you can argue, greedy, in over-leveraging, thinking that cheap and free money in Japan was going to be here to stay," said Khoon Goh, head of Asia research at ANZ Research.
"And that has gone badly wrong, and they are having to very quickly unwind it and it's having knock-on effects into asset markets."
Goh also downplayed the possibility of recession in America. "It's a little bit unfair to blame the Fed for being late or behind the curve, because until recently a lot of people were thinking that the U.S. economy was still in reasonably good shape. And no one was really ringing the recession alarm bells," Goh said.
The Fed recently decided to hold interest rates steady, while keeping the door open for a rate cut next month.
Two years ago, the Fed began raising borrowing costs to check inflation, which led to surging prices for essentials such as rent and food. Since that time, it has strived for a "soft landing," looking to control inflation without creating an economic recession.
Economists at Goldman Sachs in an analytical report raised the possibility of a recession in America within the next 12 months from 15 percent to 25 percent, although they recognized that the risk remains limited considering the tools available to the Fed.
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This video is from the Rick Langley channel on Brighteon.com.
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