Global markets plunge as 'Black Monday' hits Japan

Japan’s benchmark Nikkei 225 (^N225) has experienced its worst-ever daily selloff on Monday, amid panic selling triggered by fears of a possible US recession that is spilling over to European markets.

At the close in Tokyo on Monday, the benchmark index was down 4,451.28 points, or 12.40%, to 31,458.42.

It is the largest point fall ever, eclipsing the decline on 20 October 1987, the day after Black Monday in New York. It is the second largest decline in percentage terms, according to Nikkei data.

The panic selling extended across Asia, with markets in Singapore (^STI), Indonesia (^JKSE), Thailand (^SET.BK), and the Philippines (PSEI.PS) also experiencing drops of 2% to 3%. These declines triggered circuit breakers, temporarily halting trading for 20 minutes.

Read more: FTSE 100 LIVE: European stocks dip as Japan's Nikkei slumps

Japanese finance minister Shunichi Suzuki expressed "grave concern" as the government closely monitors the market situation.

US recession fears sparks global selloff

Weaker than expected jobs and manufacturing figures in the US have raised concerns that the Federal Reserve has left it too late to begin cutting interest rates without damaging the world’s largest economy.

Tan Boon Heng, of Mizuho Bank in Singapore, said: “The scenario of higher unemployment constraining spending and further restraining hiring and incomes and economic activity leading to a recession is the feared scenario here.”

The US Federal Reserve last Wednesday decided not to slash interest rates from the 5.25% to 5.5% range, which they have been frozen since July last year.

Kyle Rodda, senior financial market analyst at capital.com, said: “The markets are in meltdown and it’s a sea of red across the world. There are a lot of moving parts, but this is the essence of things: a looming slowdown in the US economy has cast doubts about global economic growth.

"The move has triggered a sell-off in the US dollar and a rally in the yen, the latter of which was boosted by the BOJ’s [Bank of Japan's] decision to tighten policy last week and a subsequent short-squeeze.

“The rapid move in the yen is putting downward pressure on Japanese equities, but it’s also driving an unwind of a major carry trade – investors had leveraged up by borrowing in yen to buy other assets, chiefly US tech stocks. We are basically seeing a mass deleveraging as investors sell assets to fund their losses.

Read more: Trending tickers: Disney, Airbnb, Bitcoin, Pershing Square

“The rapidity of the move has caught a lot of investors off guard; there’s a lot of panic selling now, which is what causes these non-linear reactions in asset prices to pretty straightforward fundamental dynamics.”

The market rout has spilled over, with US treasury yields falling further, European stock indexes in the red, bitcoin dumped and the dollar losing ground mainly to the yen.

London’s blue-chip index (^FTSE) was as much as 2.22% down, losing 196 points to hit 7,978.59 at the time of writing, with equities across the board falling into the red. It is the sharpest fall in London’s benchmark index since July last year.

The Dax (^GDAXI) in Frankfurt sank more than 2.6% while the CAC 40 (^FCHI) in Paris slumped 2.3%. Elsewhere, Milan (FTSEMIB.MI) plunged 3.1% and Madrid (^IBEX) gave up 2.8%.

The world’s largest cryptocurrency (BTC-USD) fell by 15% to $51,400, adding to a 13.1% drop last week.

It has suffered its worst fall since the so-called “crypto winter” when the FTX exchange imploded in 2022.

Big Tech stocks are heading for further losses when Wall Street trading begins. Nvidia (NVDA) is down 9% in pre-market trading, while Apple (AAPL) is off by 8%, Microsoft (MSFT) is 5% lower, Alphabet (GOOG) is 6% off and Amazon (AMZN) is heading for a 5.3% drop.

Wall Street’s so-called “fear index” has hit a four-year high as traders race to sell-off stocks. The Chicago Board Options Exchange Volatility Index (^VIX) – used to gauge turbulence in stock markets – has surged to its highest level since the pandemic.

Amid the panic selling, trader are increasingly betting on imminent interest rate cuts. Current money market pricing suggests an 83% probability of a half-percentage-point rate cut by the US Federal Reserve in September, followed by a possible additional cut in November.

What was Black Monday?

Monday, 19 October 1987 is remembered as Black Monday, when a chain reaction of market distress sent global stock exchanges plummeting in a matter of hours.

In the US, the Dow Jones Industrial Average (^DJI) plunged 22.6% in a single trading session, a loss that remains the largest one-day stock market decline in history. At the time, it also marked the sharpest market downturn in the US since the Great Depression.

The Fed was forced to act, slashing interest rates and providing liquidity support, to help stabilise markets.

Download the Yahoo Finance app, available for Apple and Android.