Japan’s Nikkei Suffers Largest Drop in 3 Years, Closing 5.4% Down

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Japan’s markets suffered major losses on Tuesday, with the Nikkei suffering its worst losses in over three years. The index is down 5.4% on day, and is at its lowest level since January 21. The index is currently at 16,085.44 points, slightly higher than its lowest level seen in October 2014 when the index was at 16,017.26 points.

Sharp selling in the Japanese banking sector occurred due to European banks selling financial stocks overnight on signs that the sector is currently stressed.

Mitsubishi UFJ Financial Group (TYO:8306) lost 8.7% and Sumitomo Mitsui Financial Group (TYO: 8316) lost 9.0%. Banks in the country have been under increased stress after the Bank of Japan announced a negative interest rate policy in January. The potential implications of the policy change are starting to be felt by Japanese banks, and investors are worried that the Bank of Japan is running out of policy measures at this point.

The Nikkei has already lost 15% in 2016, and a slowdown in China as well as slumping oil prices is making matters worse for the index. Pessimism in the market is being caused by the Bank of Japan’s lack of action and dismissal for corporate earnings that have caused many investors to selloff stock. Japan’s Topix index also fell 5.5% on the day.

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