Nikkei 225 plunges following US economic data

The Japanese benchmark Nikkei 225 experienced a dramatic drop of 6.7% at the start of trading on Monday before it managed to recover some of its losses. The downward trend continued after the index had already recorded significant declines last week. About half an hour after the start of trading, the Nikkei had lost over 2,400 points and stood at 33,488.08 points. About an hour after the start of trading, the index slightly recovered and was trading at 34,010.69 points, still 5.3% lower, corresponding to a loss of about 1,900 points. The background to the price crashes were fears that the US economy could falter under the pressure of high interest rates introduced to combat inflation. A report showing that growth in new hires by US employers slowed much more sharply last month than expected exacerbated nervousness in financial markets and wiped out the recent euphoria that had pushed the Nikkei above 42,000 points. There were also significant price losses on US stock exchanges on Friday: The S&P 500 fell by 1.8%, while the Dow Jones Industrial Average dropped by 610 points or 1.5%. The Nasdaq Composite fell by 2.4%, reflecting global market uncertainty. The slump began just days after US stock indexes had their best day in months when Fed Chairman Jerome Powell signaled that inflation had dropped sufficiently to consider interest rate cuts starting in September. However, concerns are now growing that the Fed has kept its key interest rate at a twenty-year high for too long, increasing the risk of a recession in the world's largest economy. These fears are affecting markets worldwide, even if US economic growth continues and a recession is not certain. The Nikkei 225 fell by 5.8% on Friday and had been struggling since the Bank of Japan's interest rate hike on Wednesday. The yen's appreciation against the US dollar strained exporters' profits and affected the tourism boom. Early Monday morning, the dollar was at 145.50 yen, significantly below its level of over 160 yen a few weeks ago. Chinese stock markets also suffered on Friday from investors' disappointment over the latest fragmented government measures to stimulate growth instead of the hoped-for broader stimulus packages. European stock indexes also fell by more than 1%.