Asian Markets in Flux: Japan’s Stocks Tumble, China Soars

The Asian markets kicked off the week with a rollercoaster ride. The Nikkei 225 index, based in Tokyo, experienced a significant drop of nearly 5%. In stark contrast, Chinese markets saw a surge, propelled by the announcement of a new stimulus package aimed at bolstering the faltering economy.

The sudden downturn in Japanese shares was triggered by the ruling Liberal Democrats’ decision to elect former Defense Minister Shigeru Ishiba as the successor to Prime Minister Fumio Kishida, who is due to step down on Tuesday. Ishiba’s economic policies, which include support for the Bank of Japan‘s moves to raise interest rates from their near-zero level and potential increases in corporate taxes, are perceived as less market-friendly than those of his chief rival, Economic Security Minister Sanae Takaichi.

The election results also had a significant impact on the currency market, with the dollar falling from over 146 yen to under 143 yen after the ruling party’s vote ended late Friday. By late Monday Tokyo time, it was trading at 141.78 yen.

Impact on Japanese Corporations and Ishiba’s Economic Policies

This currency fluctuation had a profound effect on exporters’ shares, as a stronger yen is disadvantageous for Japanese companies that generate a large portion of their sales and profits overseas. Major corporations such as Toyota Motor Corp, Honda Motor Co., and Nissan Motor Co. saw their shares drop by 7.6%, 7%, and 6% respectively. Factory equipment maker Fanuc’s shares also took a hit, sinking 5.7%.

Despite the market turmoil, Ishiba has expressed his support for Kishida’s “new capitalism” policies, which aim to foster a more equal distribution of national wealth. However, the rising prices have hampered progress towards encouraging consumers to spend more.

In contrast to the Japanese market, the Hang Seng in Hong Kong jumped 3.3% to 21,321.97, with Hong Kong’s Hang Seng Mainland Properties Index up 8.6%. The Shanghai Composite index also experienced a significant surge, rising 6.8% to 3,298.03.

China’s Economic Stimulus and Global Market Reactions

The main index for China‘s smaller market in the southern city of Shenzhen jumped nearly 11%. These rallies were fortuitously timed, coinciding with the eve of a week-long national holiday marking 75 years of communist rule in China. Markets in mainland China will be closed from Tuesday through Oct. 7.

China is pressing ahead with measures announced last week to support the property industry and revive languishing financial markets. The central bank announced on Sunday that it would direct banks to cut mortgage rates for existing home loans by Oct. 31. Meanwhile, the major southern city of Guangzhou lifted all home purchase restrictions over the weekend, while both Shanghai and Shenzhen revealed plans to ease key buying curbs.

This effort to pull the housing market out of a prolonged downturn comes as the economy shows signs of slowing further. China’s manufacturing activity in September contracted for a fifth consecutive month, as the official purchasing managers’ index came in at 49.8, remaining below the 50 line that separates expansion from contraction, according to data from the National Bureau of Statistics released on Monday.

The recent market upheaval bears a striking resemblance to the 2008 global financial crisis, when the election of a new leader in Japan led to a similar slump in the stock market. However, the current situation is unique in that it is coupled with a global pandemic and a shift in economic policies in major economies worldwide. The impact of these changes on the global economy remains to be seen. The recent fluctuations in the Asian markets underscore the interconnectedness of global economies and the potential ripple effects of political and economic changes. As the world watches, the future of these markets hangs in the balance.