Lesson 5 - Japan's stock market crash Flashcards
2024 has been the biggest stock market crash for japan
biggest since 1987
who’s in control the government of Japan and what does the ministry of finance do?
is a constitutional monarchy with a parliamentary system with the ministry of finance that intervenes its markets to stabilize or stimulate growth
what challenges is the japanese economy facing
aging population + declining birth rate leads to declining workforce + increased health costs.
what’s japan’s stock market called
nikkei 225
what are the historical events of the japanese stock market from 1945-2024
1945-1960: postwar recovery
1960-1970: economic miracle - low cost manufacturing making foreign companies set up factories and purchase manufacturing from japan
9180: bubble economy - banks were encouraged to lend more leading to more consumer spending which peaked in 1987
1990s: lost decade: consumers saved and less wanted to spend
2000-2020: global financial crisis + covid 19
2024: august crash
why was there a stock market crash in august
japanese gov’t raised interest rates by 0.1% to combat deflation + slipping of yen and then raised interest rates up 0.25% to fight against dropping of the yen making the yen carry trade no longer effective where investors scrambled and started to sell off securities (tech) some biggest stock in japan + globally declined in value
what’s the yen carry trade
due to the negative to low interest rate policy, it allows for foreign investors to borrow in Yen to then invest in securities in USD. when they sell the securities they gain the difference.
what sectors were impacted the most from the stock market crash
banking sectors (20%), automotive sector (18%), tech sector (9%)
manufacturing decreased by 15%, consumer discretionary decreased by 12%, healthcare decreased by 10%
what’s the effect of the stock market crash
the nikkei 225 dropped by over 12% in august 2024
major japanese industries saw reduced demand
crash increased risk of a recession in japan, with economic growth slowing and consumer spending declining
for japanese banks: many banks saw stock prices drop, raising concerns as they worked to protect capital reserves. as volatility persisted, banks become more cautious with lending. japan’s insurers , heavily reliant on equity investments, also experienced loses
what’s the implications of the japanese stock market crash to the rest of teh world (canada + USA)
japanese stock market crash caused significant volatility - canadian + US investors with exposure to japan’s market saw sharp losses in portfolios. Major north American indices, fell as export companies tied to the japanese market suffered
reminder of how interconnected financial systems have become - investors are reminder to stay focused on risk management and diversification
what happened to post crash
nikkei recovers post-drop, US recessions fears lead to Nikkei dropping over 4%, bank of japan keeps interest rates steady,
why would you ratehr invest in developed markets than developing markets
developed markets offer stability wile developing market offer greater returns but you have a greater risk
