Japan Suffers Multi-Day Battering – Is the Nikkei Crashing?

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Tokyo Stock Exchange
TOKYO - DECEMBER 28: The Tokyo Stock Exchange December 28, 2012 in Tokyo, JP. It is the third largest stock exchange in the world by aggregate market capitalization.

The Nikkei225, Japan’s main stock index, is down over 2000 points for the week (9.9%), causing many to speculate that the Nikkei is teetering on the edge of catastrophe.

While a full blown market collapse is unlikely due to Japan’s versatile economy and ongoing economic stimulus on behalf of the BoJ, such a large and rapid drop in the index is concerning and is likely to cause anyone with even a slight doubt about the future of Japanese stocks to sell what they can, further worsening the situation.

Stocks across the board are down double digits this year in Japan, with Softbank (TYO:9984) down over 30% YoY, and Japanese automakers Honda (TYO:7267), Toyota Motor (TYO:7203), and Nissan (TYO:7201) all down over 20%.

Japan is the third largest economy in the world and is a large trading partner of many developing Asian economies such as Indonesia, Malaysia and Vietnam. Any serious recession in Japan would lead to contagion in the region, further depressing economic conditions in Asia, which the US and European stocks are now inextricably linked to.

Is Japan crashing? Perhaps not yet, but the situation warrants vigilant attention because any crash in an economy as large as Japan would have incalculable consequences for the world economy as a whole.

Keep your eyes open and firmly fixed on Japan.

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