It will take time for the Nikkei to regain its "vigor" after the plunge in confidence.
AInvestMonday, Aug 5, 2024 7:23 pm ET
1min read
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Japanese stock markets have given back most of their gains for much of the year, wiping out the early 2014 rally, after a 12.4% plunge in the Nikkei 225 index on Monday, the biggest one-day fall since Black Monday in 1987.

The losses have come as a shock to many investors who had been betting on a sustained rally in the stock market as prices and wages started to rise after years of stagnation, and as a new tax-free investment account, NISA, has been encouraging new money into the market.

“Many retail investors have only experienced a rising market,” said Haruhiro Nakano, president of Nippon Life Asset Management, as the bubble in the market caused by the yen’s weakness was just getting started.

Japan’s stock markets have fallen broadly, with some of the worst hit being companies that are popular with small investors. Japan Tobacco, a favorite of retail investors for its high dividend yield, fell 16.8 percent on Monday. Softbank, the company led by Masayoshi Son, fell 18.7 percent.

As the government tries to encourage people to shift some of their savings into investments, the growing losses could dampen the appetite for risk among Japanese retail investors. According to data from the Japan Securities Dealers Association, households have pumped at least 75 trillion yen ($530 billion) into NISA accounts this year, nearly four times the amount pumped in during the same period last year.

Margin calls may have added to the market’s decline. While the Nikkei index has fallen from its record high, margin calls on retail investors’ accounts have risen to their highest level in 18 years in late July. When stock prices fall more than expected, investors who have bought stocks on credit often have to sell to meet margin calls unless they have enough extra cash to put up as collateral.

“We are seeing retail investors seem to be forced to sell,” said Takatoshi Itoshima, strategist at Nomura Asset Management, “though we may have seen the peak of selling in the short term, I can’t be sure.”

The yen’s rapid rise against the dollar has also weighed on the stock market, as it has eaten into the profits of large Japanese exporters. The yen has risen more than 3 percent against the dollar, its highest level since the beginning of January, deepening the pain for households that are speculating in currencies.

“People without long-term investment experience may not have experienced such a big market decline before, so the impact may be quite big,” said Masahiro Ichikawa, chief strategist at Mitsui Asset Management. “I think it will take some time for the market to stabilize after such a big decline.”

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