Why is Japan’s stock market crashing?

It is, to use Trumpian language, a bloodbath. The Tokyo stock market has plunged 12.4% today, compounding the misery of last Friday when Tokyo’s financial markets suffered a dramatic plunge of over 2000 points (the second biggest drop in history) in the Nikkei. Some emblematic companies had an especially painful day then — Tokyo Electron lost 11.98%, Isetan Mitsukoshi (Japan’s biggest department store chain) fell 10%, real estate giant Mitsui Fudosan lost 8%, as did Softbank, and Toyota was down 4%. But those hoping last week was just a blip have been dismayed to see the rout has only continued.

The Nikkei is now down nearly 4% from a year ago. In contrast, thanks to the see-saw effect that sees the Japanese currency rise while everything else falls, the Yen gained considerably against the dollar moving from 162 to 142. After a long period of virtual stasis in Japanese finance, many here are in a state of shock.

There are many variables at work, but events in the US were the main factor behind the sudden shifts of the financial tectonic plates. Poor economic data suggesting a faster than expected slowdown raised concerns over a possible US recession, with tech stocks taking a battering. This, plus the prospect of a rate cut signalled by the Federal Reserve for later this year, seems to have triggered the initial tremors in Japan.