Japan's Nikkei Wipes Out Year's Gain

Japanese benchmark index Nikkei 225 on Monday saw its biggest one-day drop since 1987, erasing all of 2024's gains and more. The index dropped 12.4 percent to 31,458 points from 35,910 points. Earlier this year, it had surpassed the 40,000 point mark for the first time in a surprising stock market rally that had continued despite the generally weak Japanese and world economy. The AI boom boosted Japanese semiconductor stocks more than expected, contributing majorly to the good results then. Now, the Japanese market reacted most strongly in a global stock market rout over the possibility of the U.S. economy entering a recession. On Friday, the U.S. Labor Department had announced that hiring had unexpectedly slowed down in July, stoking fears of negative GDP growth on the next release of this data later this month. The Dow Jones Industrial Average dropped 1.5 percent on the news, while the S&P 500 lost 1.8 percent.

In mid-February, the Nikkei index had first surpassed levels from before the country’s devastating assets bubble burst in 1989/1990, from which the economy is thought to have never recovered. Around the same time, the Japanese economy slid from the world’s third-largest to its fourth-largest – having been overtaken by Germany's - to much international coverage. While Japanese stocks were aided by the weak yen then, the currency now strengthened to its highest level against the U.S. dollar since January, dampening international buying projects of Japanese stocks.