A system is only as weak as its weakest link. Foreign mass media, in particular CNN, saw Japan’s Nikkei index fall to a record 4,451.28 points, or 12.4%, the biggest drop in its history.
The Nikkei 225 index is one of the most important stock indices in Japan. It includes the 225 most actively traded companies on the Tokyo Stock Exchange. The index is calculated as the arithmetic average of the share prices of these companies. The Nikkei 225 index was first published in 1950, and since then it has become an important indicator of the state of the Japanese economy.
It covers companies from various industries – manufacturing, finance, transportation and technology (including Toyota Motor Corporation, Sony Group Corporation, SoftBank Group Corp., Fast Retailing Co., Ltd., Tokyo Electron Ltd., Honda Motor Co., Ltd , Canon Inc., Mitsubishi Corporation, Panasonic Corporation, Nintendo Co., Ltd)
Why Japan tightened monetary policy
In recent months, inflation in Japan began to rise, which forced the Bank of Japan to take measures to contain it. Strengthening policy helps reduce inflationary pressures. Strengthening monetary policy is also aimed at stabilizing the economy and preventing market overheating.
Many central banks around the world, including the US Federal Reserve and the European Central Bank, are also tightening their monetary policies. Japan is following these trends to keep its economy competitive.
Why American and European indices lost 1 to 2%
Such dynamics are a completely natural reaction to the strengthening of politics in Japan. The tightening of monetary policy in Japan caused an outflow of funds from the US market, which affected global markets. Rising inflation and expectations of further tightening of monetary policy in other countries also put pressure on markets. Current geopolitical events and uncertainty are also contributing to volatility in the markets.
Some major companies reported lower earnings, which negatively affected their shares and, by extension, the indexes. Banks JPMorgan Chase, Citigroup, Wells Fargo and BNY Mellon reported lower lending income due to stagnant business following the Federal Reserve’s cycle of interest rate hikes.
PepsiCo has warned that its North American sales have been hit by years of inflation, which has hit low-income consumers. Finally, shares of Nvidia, Super Micro Computer and Citigroup suffered significant losses on the S&P 5002 as demand for their products and services declined.
What geopolitical events have the greatest impact on global markets
Of course, this is a conflict in Ukraine. After all, military actions and sanctions against Russia continue to create uncertainty and affect energy and food prices.
The trade tension between the USA and China is also causing “weather” on the stock markets. Escalating trade wars and the imposition of new tariffs could affect global supply chains and economic growth.
Finally, changes in international politics catalyze certain changes in stock markets as well. Decisions made by international organizations and unions, such as OPEC or the EU, can significantly affect the economic situation in the world.
Political instability in some countries. Protests (among other things, protests of the “right” against the “left” in Great Britain, about which IA “FAKT” recently wrote, coups and political crises in various regions of the world also contribute to market volatility.
How uncertainty affects the volatility of stock markets
So, it’s pretty obvious why current geopolitical events and uncertainty have a significant impact on stock market volatility.
Conflicts, trade wars and political instability create uncertainty that makes investors averse to risk. This leads to fluctuations in the prices of shares and other financial instruments. When companies and consumers are uncertain about the future, they postpone major investments and purchases. This reduces economic activity and can lead to a fall in the profitability of stock markets.
Mass media increase volatility. News about political events can cause sharp fluctuations in the markets, as investors react quickly to new information. Political decisions, such as the introduction of sanctions or changes in tax policy, can significantly affect certain industries and companies, which also contributes to volatility.
These factors combine to create uncertainty and increase risk for investors, leading to lower indices.
Regarding forecasts, analysts expect that the situation may remain volatile in the short term due to uncertainty in the global economy and possible further increases in interest rates. However, in the long run, companies can adapt to new conditions and find new opportunities for growth.
Tatyana Morarash
