FX.co ★ Nikkei falls prey to Japan’s new Prime Minister

Negative news has hit Japan’s stock market hard! The nationwide Nikkei index has tumbled by 4.6%. The reason is the growing concerns among investors about Shigeru Ishiba's economic policy.

On September 30, Nikkei, the Tokyo Stock Exchange’s benchmark index tracking the stock fluctuations of Japan's 225 largest companies, took a nosedive. The index sank by 4.65% amid investor worries about Shigeru Ishiba’s economic strategy. On October 1, the policymaker took on leadership of Japan’s government after being elected head of the ruling Liberal Democratic Party (LDP).

The newly elected Prime Minister confirmed the need to "normalize monetary policy." In this context, market participants fear significant changes, which could entail negative consequences.

For several years, the Bank of Japan has pursued an ultra-loose monetary policy, considering it necessary to bolster the market and combat prolonged deflation. In the spring of 2024, the central bank raised interest rates for the first time in 17 years from negative territory. At the end of July, the regulator announced a rate hike for the second time in six months, bringing the key interest rate to 0.25%. The reason was rapid inflation acceleration.

Following this move, the Bank of Japan faced heavy criticism. The actions of the Japanese regulator triggered the massive collapse of global stock markets. The Bank of Japan ventured into monetary tightening despite poor economic statistics in the country. Thus, the rate hikes sent shockwaves across stock markets worldwide.