Global Markets Struggle Amid US Recession Fears and Bank of Japan Rate Hike

The double whammy of potential US recession fears and a rate hike by the Bank of Japan has gripped global markets. As a result, markets worldwide have experienced a sharp selloff, prompting an urgent response from major economies.

Japan’s equity market faced the steepest decline. The Topix and Nikkei 225 indices plunged over 7 percent on August 5, marking a three-day decline not seen since the Fukushima nuclear disaster in 2011. This selloff pushed both indices into bear market territory, triggering a 10-minute circuit breaker halt on Topix futures trading.

Japan’s Finance Minister, Shun’ichi Suzuki, stated that the government is working with the Bank of Japan and the Financial Services Agency to closely monitor the market with urgency, according to Reuters.

The recent rate hike by the Bank of Japan and US recession fears caused the Japanese yen to spike, further pressuring Japan’s equity market. Similarly, South Korea’s Kospi faced intense selling pressure, marking its worst session since the 2008 global financial crisis. The Kospi ended the session 9 percent lower, its largest percentage drop since October 2008. This decline activated trading curbs for the first time since March 2020, halting trading of stocks and derivatives for 20 minutes.

In response, Yonhap News Agency reported that South Korea will hold a meeting to address the sell-off, focusing on analyzing the downturn’s causes and effects while exploring measures to stabilize the market amid global volatility and investor uncertainty.

Taiwan experienced a similar trend, with the Taiex index closing with an 8.4 percent loss due to concerns over the weak US economic outlook. The Taiwan Stock Exchange announced a media conference to explain recent market movements and contingency response plans.

Other Asian markets, including Singapore, Indonesia, China, Hong Kong, and Thailand, fell by 1.5-4 percent. India’s Nifty 50 also slumped around 3 percent.

Major equity indices in the UK, Russia, France, and Germany fell by 2-3 percent. US futures tied to the Dow Jones, Nasdaq 100, and S&P 500 were also down 1-3 percent, indicating a weak opening for US equities.

The widespread market losses have sparked expectations of an off-cycle rate cut from the US Federal Reserve. Economists anticipate more aggressive rate cuts to protect the world’s largest economy from a potential recession. Concerns about elevated inflation have largely faded, giving rise to speculation that economic growth could stall unless the Fed lowers interest rates from their highest level in over two decades.