Japan Selloff Over Concerns of US Economy

Asian stocks tumbled as sentiment was hit by a triple whammy of a Japan selloff, a global tech rout, and weakness in the US economy. The MSCI Asia Pacific Index dropped as much as 2.8%, the most significant decline since June 2022, with Taiwan Semiconductor Manufacturing Co. and Tokyo Electron Ltd. among the biggest drags. Japan’s Topix Index headed for a technical correction, while benchmarks in the tech-heavy markets of South Korea and Taiwan fell about 3%.

Traders are pulling back on risks as the investment landscape shifts. Japanese stocks are falling out of favor as the prospect of further interest rate hikes by the country’s central bank supports the yen, hitting the shares of exporters. Disappointing earnings from US tech giants have cooled optimism over artificial intelligence, triggering a rout that has ensnared Asian chip giants.

The regional declines also followed concerns over the health of the US economy. Data released on Thursday showed unemployment claims hitting an almost one-year high while manufacturing shrank. Investors are monitoring payrolls data due later Friday for further clues on the state of the economy and the Federal Reserve’s rate path.

Billy Leung, an investment strategist at Global X Management, noted, “The narrative is changing quickly after a confirmation of the FOMC’s September rate cut path. As manufacturing and job data are pointing toward recession levels, investors are now questioning whether the Fed is cutting too late. A US recession would also hurt Asia.”

MSCI’s Asia benchmark is on track for its third-straight week of declines. Weakness in Chinese shares also weighed on the region as traders awaited further stimulus measures from Beijing to shore up its flagging economy.

In Japan, benchmark indexes nosedived as much as 5% on Friday, with most Asia-Pacific markets lower following a Wall Street sell-off overnight. The Nikkei extended its 2.62% slide on Thursday to lead losses in the region and reach its lowest level since February. Heavyweight names like Softbank Group, Mitsui, and Marubeni saw significant losses, with semiconductor firm Tokyo Electron down over 9%.

South Korea’s Kospi tumbled 2.71%, while the small-cap Kosdaq plunged 2.86%. However, K-pop stocks were a bright spot, with shares of all four listed K-pop companies climbing on Friday, led by Hybe after the firm announced its new business strategy.

Australia’s S&P/ASX 200 was down 2.02%, retreating from its all-time high achieved on Thursday. Hong Kong’s Hang Seng Index was 1.81% lower, while mainland China’s CSI 300 fell 0.74%.

The gloomy sentiment in Asian markets comes after a sell-off on Wall Street in Thursday’s trading session, which saw all three major US indexes plunge on recession fears. The Dow Jones Industrial Average dropped 1.21%, the S&P 500 shed 1.37%, and the tech-heavy Nasdaq Composite slipped 2.3%. The Russell 2000 index, the small-cap benchmark that had rallied lately, dropped 3%.

​In the US, fresh data stoked fears over a possible recession and apprehensions that the Federal Reserve could be too late in cutting interest rates. Initial jobless claims rose the most since August 2023, and the ISM manufacturing index, a barometer of factory activity in the US, signaled economic contraction at 46.8%. Following this data, the 10-year Treasury yield dropped below 4% for the first time since February.