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What Analysts Say About Nikkei's Mid-Afternoon Collapse: Roundup

Yumi Teso
Pedestrians waiting to cross a road are reflected in an electronic stock board outside a securities firm in Tokyo, Japan, on Wednesday, Oct. 18, 2017. As Prime Minister Shinzo Abe\'s ruling party heads for what polls suggest will be its best national election result in more than three decades, Japan\'s stock market has surged to heights not seen since before the financial crisis. Photographer: Bloomberg/Bloomberg

In Tokyo today, it was not an afternoon for a stock trader to catch up on the latest research reports.

In a little over an hour, what had been another solid rally in Japanese stocks turned into some rather sharp clear-air turbulence, with the Nikkei 225 Stock Average plunging about 3.6 percent from the afternoon-session high to its low for the day.

The sudden reversal from the highest levels since 1992 for the benchmark quickly affected the currency market, with the yen climbing. South Korean and Hong Kong equities also tumbled in sympathy. Sydney traders could count themselves lucky their market had already closed before the worst of the sell-off.

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So what caused it? Here are some theories:

Takashi Kudo (Head of corporate sales at Moneysquare Japan Inc. in Tokyo):

  • There was some speculation in the market that the drop in equities was due to profit-taking by foreign investors, before the special quotation, and that dragged the dollar/yen lower
  • Typically, declines in stocks lead to yen buying

Hans Goetti (Founder of HG Research in Singapore):

  • The afternoon drop in Japanese stocks may just be a one-day move and is nothing to worry about
  • Japan stocks could rise as much as 30 percent in next few months on earnings, valuations and central bank policy

Jingyi Pan (Strategist at IG Asia in Singapore):

  • “I do think the market is taking profit indeed, but likely due to the fact that it had been an opportune moment”
  • Some of the rhetoric coming out of U.S. President Donald Trump’s China visit had not been the most amicable, and across haven assets, there had been some buying. The reiteration of the need to “address the unfair trade practices” had likely been one alarming the markets

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Tsutomu Yamada (Analyst at Securities Co. in Tokyo):

  • Sudden drop in the Topix and the Nikkei 225 is simply a technical adjustment as the earlier rally was too fast. Some people are taking profits after extreme market advance

Yukio Ishizuki (Senior currency strategist at Daiwa Securities Co. in Tokyo):

  • A pullback triggered gains in the yen against the dollar and other currencies, while the move wasn’t triggered by any news or currency-specific issues

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