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Tokyo stocks took a downturn on Monday, with major indices retreating as the yen strengthened against the U.S. dollar, sparking concerns over the competitiveness of Japanese exporters. The shift comes amid growing expectations that the US Federal Reserve may soon cut interest rates, driving the yen higher and weighing on Japanese equities.
The Nikkei 225 fell by 1.2%, closing at 32,500, while the broader Topix index dropped 0.9%, following similar trends in international markets. Investors were reacting to signals that the U.S. Federal Reserve could adopt a more dovish monetary policy, which has led to a surge in the yen as traders move away from the dollar.
A firmer yen typically hurts Japan’s export-heavy economy, as it makes Japanese goods more expensive abroad and reduces the value of overseas earnings when converted back into yen. Leading exporters, such as Toyota and Sony, saw their stock prices fall by 2% and 1.5%, respectively, amid concerns that a strong yen could dent profits.
“Investors are increasingly nervous about the impact of a stronger yen on corporate earnings, especially for large exporters,” said Kazuo Sugimoto, a market analyst at Daiwa Securities.
Expectations of a rate cut have been fuelled by a series of mixed economic data from the U.S., including signs of slowing job growth and declining inflationary pressures. While the Federal Reserve had previously maintained a hawkish stance, there is now growing speculation that it may shift to a more accommodative policy to stimulate growth. This has led to a weakening of the dollar and a corresponding rise in the yen.
The slide in Tokyo stocks mirrors a broader trend in global markets, where concerns about the trajectory of the U.S. economy and its impact on international trade have weighed on investor sentiment.