The Japanese shares tend to have been tumbled after yen hit of ten-week high as against US dollar, thus stimulating concerns of drop in the profits of exporters.
Index of Nikkei 225 fell by 6.5% this Thursday. This drop put market in the bear territory, defined often as fall of 20% from recent peak of stock index.Index happens to have fallen 22% when it hit 5 and a ½ year of high in the month of May.
Strong yen deteriorates value of profits of exporters when they do repatriate their earnings from abroad back to home.Currency of Japan rose to about 94.06 yen as against U.S. dollar within Asian trade, the highest level from early April.
Sentiment of investors is also hurt by decision of Bank of Japan earlier in this week for holding back on having its stimulus programme expanded.
At same time, concerns are there whether the latest moves of policy that Japan announced will be sufficient in sustaining economic recovery for long term in world’s 3rd largest economy.
Analysts, however, said that the huge concern that investors have was fluctuation in value of yen.
The currency of Japan has weakened significantly during the previous couple of months after the policy makers of Japan introduced steps for enhancing growth.
The steps that include decision of the central bank to double money supply of country saw yen fall around 30% against U.S. dollar and that too, between the months of Nov. and May.
Many prominent exporters reported jump in the profits due to drop in yen and also stimulated a rally regarding stock market in Japan.
Anyway, yen got strengthened in the previous few weeks, rising above 8% against U.S dollar since the 22nd of May. Investrust’s chief executive, Hiroyuki Fukunaga said that either strength of yen persists or doesn’t is one key: if it persists, earnings of companies would be trimmed.
The other markets of Asia also dropped this Thursday amid the uncertainty over impact of the potential scale back of the stimulus by Federal Reserve of US.
Shanghai Composite Index in China lost 3.1%, Kospi of South Korea dropped 1.4% and Hang Seng of Hong Kong was down by 2.7%.
According to BBC, this happens to be 3rd time in 3 weeks that Nikkei plunged above 5%.
Quantitative easing is introduced be central bank of US, a programme according to which it purchases bonds for increasing money supply as well as improving liquidity in financial system, attempting to spur the economic growth.
Though it is quite speculated that central bank might scale back programme.
That was after minutes of last meeting of Fed that was revealed the previous month said many officials did favour slow down of efforts of Fed in June.
According to analysts, investors probably would remain cautious till there’s much clarity over the steps central bank of US intends to take.
Director of the foreign exchange in Tokyo at Credit Agricole, Yuji Saito, said that it is expected that it will stay elevated till policy meeting of Fed next week over which it would be seen with much clarity into tapering issue.
The Federal Reserve next meets on 18-19 June.