Nikkei crash: Japan's worst stock market slumps

New Delhi: It’s been described as a carnage by some. The Japanese stock market, led by the benchmark Nikkei 225 index, on Wednesday saw a plunge of more than 3% in afternoon trading. On Tuesday, it fell by 5.4%, which was the largest since June 2013. The collapse was largely due to Japanese banking stocks, which reacted sharply to the Bank of Japan adopting a negative interest rate policy late last month. Tuesday’s session closed at 16,085.44, which meant the Nikkei was getting closer to the 16-month low of 16,017.26 it witnessed on 21 January.

However, Tuesday’s crash is not unprecedented in the recent history of Japanese stock markets, which has seen several lows in the last two-three decades. Here’s a list:

1989—the collapse of the bubble economy

Almost three decades after the World War II, Japan witnessed unprecedented recovery, which turned to economic prosperity till the late 1980s, when its growth was dubbed an “economic miracle”. Japan’s rise as an economic superpower, at the time, was attributed to manufacturing, especially in two sectors—automobile and electronics. The Bank of Japan’s “loose monetary policy” along with strong investor confidence saw the economy (and real estate) peak till 1989, when the markets began to crash. And in a spectacular fashion. Soon after the Bank of Japan tightened its monetary policy, the bubble burst, with the Nikkei plunging by “nearly 50% from approximately 39,000 to 20,000 during the year 1990, hitting 15,000 by 1992”, as BubbleBubble notes.

Here’s more from Investopedia, “Between 1955 and 1990, land prices in Japan appreciated by 70 times and stocks increased 100 times over. Trading became the national sport, and the Japanese jumped into the market with more blind confidence than that of the Americans of the 1920s. During the eighties, large Tokyo firms were worth more individually than all their American counterparts combined, and Japanese golf courses were worth more than the value of all the stocks on the Australian exchange.”

What followed the 1990 crash was a phase the Japanese dub as the “Lost Decade” where Japan’s growth was mostly stagnant, and its growth rate being the “lowest among industrialized countries of the world”. Between 1995 and 2002, Japan’s gross domestic product (GDP) growth averaged 1.2%.

October 2008—worst intra-day crash in 20 years

The global economic crisis of 2008 was just in its early stages, but the Asian market, particularly the Nikkei, felt its impact almost immediately. On 10 October 2008, as the Guardian reported back then, “Nikkei stock average fell almost 10% in its biggest single-day drop for more than 20 years.” It also coincided with the closure of one of the country’s “established life insurer”, Yamato Life Insurance, that week. Before the shock, the Japanese stock market, as this research paper (PDF) noted, reached a peak in “the summer of 2007, and with the outbreak of the subprime loan crisis, began a gradual but substantial decline through the fall of 2008”.

Japan, among the countries to be worst hit by the economic crisis of 2008-09, was also “the only major advanced economy that experienced negative growth in 2008” and continued to contract sharply in 2009.

2011—investor panic post Fukushima

In March 2011, an earthquake in Japan’s Fukushima triggered a tsunami, which would further trigger a nuclear accident, the worst the world had seen since the Chernobyl disaster of 1986. Three days after the accident, the Nikkei sank by nearly 11% or more than 10,000 points to close at a low of 8,605.15. The fall was attributed to investors panic selling post-Fukushima, fearing a large-scale nuclear crisis in the country.

A few months later, on 8 August 2011, stock markets around the world crashed due to fears over the European sovereign debt crisis and slow economic growth in the US. The downgrading of America’s credit rating by Standard & Poor’s from AAA to AA+ earlier that week also contributed to the crash. The Nikkei hit a five-month low, falling by 2.2%.

2013—fears over China’s economic data

In May 2013, the Nikkei fell by 7%, its worst intra-day fall since the Fukushima disaster, thanks to investors being “rattled by weak economic data from China and indications that the US Federal Reserve may start dialing down its bond-buying program as early as June (the following month)”, according to a CNN Money report.

2014—several global factors lead to another crash

On 16 October 2014, the Nikkei fell by 2.2% after “data from the US showed retail sales and produces prices both fell in September, dimming expectations of an interest rate hike by the central bank”, the BBC reported back then. The Nikkei 225 index closed at a four-month low of 14,738 that day.