Japan’s Nikkei Sees Largest Drop Since 1987 Amid Global Sell-Off
On Monday (5th August 2025), Japan’s Nikkei 225 suffered its most significant one-day loss in history, plummeting 4,451 points, or 12%, amidst a global stock market rout. This sharp decline marked an important turning point for the Japanese stock market, which has now entered bear market territory, defined by a 20% drop from recent highs.
*JAPAN’S NIKKEI CLOSES DOWN 12%, LARGEST POINT DROP IN HISTORY EXCEEDING BLACK MONDAY 1987
The Nikkei’s fall comes after a previous decline of 5.8% on Friday, marking its most significant percentage drop since March 2020. The index has been down 24% since early July, reflecting mounting concerns over domestic and international economic conditions.
Global Factors Impacting the Japanese Market
The Nikkei’s downturn is part of a broader global trend. Weak U.S. jobs data released on Friday intensified fears about the world’s largest economy, contributing to a global sell-off. The U.S. Labor Department reported a significant slowdown in job growth for July, with unemployment rising to its highest level since 2021. This has heightened concerns about a potential economic downturn, prompting market jitters worldwide.
In addition, the Japanese yen has surged against the U.S. dollar, trading around 142 to the dollar on Monday, compared to 145.25 on Friday. This appreciation has been exacerbated by a sudden unwinding of the yen carry trade, a popular strategy where investors borrow in yen to invest in higher-yielding assets elsewhere.
Impact of Japanese Monetary Policy
Compounding the market turmoil, the Bank of Japan (BOJ) raised interest rates on July 31, its second increase this year. The move aimed to curb inflation but has triggered significant volatility in Japanese equities. The BOJ’s decision to reduce government bond purchases has put additional pressure on the yen, impacting Japanese companies with substantial overseas revenue.
In case you’ve been wondering why the market is struggling recently, here’s one of the reasons:
For 30 years, Japan had 0% interest rates, allowing investors to borrow yen at no cost and invest globally in assets like T-Bills and the Nasdaq.
“The rise in the yen has set off a domino effect, triggering a global unwinding of carry trades,” noted Stephen Innes, Managing Partner at SPI Asset Management. This has contributed to a “full-on avalanche” of market instability, impacting both Japanese and global markets.
Asian Markets Mirror Japan’s Decline
The turbulence in Japan is mirrored across the Asia-Pacific region. South Korea’s Kospi index, Taiwan’s Taiex, and Australia’s S&P/ASX 200 all experienced significant drops, with trading halts triggered in several markets. Hong Kong and China stock indices also recorded notable declines, following a sharp drop on Wall Street.
Conclusion
The dramatic fall in Japan’s Nikkei 225 highlights the interconnectedness of global financial markets and the impact of domestic and international economic factors. As Japan navigates through this period of heightened volatility, the broader implications for global equity markets and financial stability remain uncertain.4
