News Navigator: What should investors be wary of after Japan’s August stock fluctuations?

The Mainichi Shimbun answers common questions readers may have about the recent major decline and rebound of stock prices in Japan.

Question: Stock prices dropped significantly in early August, didn’t they?

Answer: Yes, on Aug. 2, the closing price of the Nikkei Stock Average dropped by 2,216 points from the previous day, and on Monday, Aug. 5, it dived 4,451 points from its pre-weekend close, the biggest decline in history. Amid strengthening views that the U.S. economy, which had been in good shape until then, would worsen, investors rushed to sell stocks.

Q: The yen also rose, didn’t it?

A: That was one of the reasons for the stock market decline. At the end of July, the Bank of Japan decided on an additional rate hike, but the U.S. is trying to lower interest rates. As a result, people who had been selling low-interest yen and buying high-interest dollars to make a profit started buying yen and selling dollars, leading to rapid appreciation of the yen and depreciation of the dollar. Car manufacturers and other companies that make their money from exports see their profits shrink when the yen rises, and investors accordingly anticipated that their performance would worsen, prompting them to sell stocks en masse.

Q: Is it safe to continue investing in stocks?

A: With the launch in January this year of the new Nippon Individual Savings Account (NISA) tax exemption program for small-scale investment, some people have just begun investing. It has been pointed out that some individual investors, shaken by the plunge in stock prices, may have sold their shares in panic. But share prices normally fluctuate, so it’s important to take a long-term view. The performance of companies themselves has not worsened, and in fact many stocks have actually been bought back since then. The Nikkei turned around and rose 3,217 points on Aug. 6, the largest single-day gain in history.

Q: What will happen to stocks from here on?

A: It’s difficult to predict due to factors like currency exchange rate fluctuations and the situation in the Middle East, but the focus of attention is the outlook for the U.S. economy. Market analysts say that markets may remain unstable until the U.S. presidential election is over and the monetary policies of Japan and the United States become clear.

(Japanese original by Aya Iguchi, Business News Department)