The Japanese stock market has been under pressure as the Nikkei index opened lower, reflecting trends from the U.S. market. On December 7, 2024, the Nikkei average began trading down by nearly 200 points, settling around the 39,800-level mark. This decline was largely driven by significant decreases among major technology stocks across the Pacific.
The U.S. stock market saw similar trends, with the Dow Jones Industrial Average closing down by 178 points (0.4%) at 42,528. Strong economic indicators, including the JOLTS report, which revealed non-farm job openings exceeded forecasts at 8.1 million, contributed to the downward pressure on global markets. These figures underscored the resilience of the economy, leading to rising long-term interest rates, which discourage stock market investment.
The impact of U.S. economic performance on Japan is stark. The U.S. Institute for Supply Management's service sector index also surpassed expectations, rising to 54.1—up 2 points from the previous month—further fueling fears of persistent inflation. James Knightley, Chief International Economist at ING Group, noted, "Economic data has shown the economy's strength, and inflation remains a concern." Such insights have contributed to growing skepticism about the timing of interest rate cuts by the Federal Reserve.
Market reactions have been swift. The rise of long-term interest rates has made stocks appear overpriced compared to bonds, leading to widespread selling. With the possibility of interest rates staying high longer than anticipated, investors are feeling the crunch. Notably, shares of Nvidia fell by 6.2% after the company’s announcement of offering AI technology to robotics firms, as profit-taking ensued.
Back on the home front, pressures on the Tokyo stock market are compounded by domestic concerns. The Topix index also decreased, with notable declines among companies like Fast Retailing and Sony Group. Some companies, like SoftBank Group, have also witnessed declines, reflecting the broader market malaise.
Despite the gloom, some sectors have shown resilience. Banking stocks, including Mitsui Sumitomo Financial Group, have experienced gains, as have department store chains like Recruit and Nitori Holdings. The mixed results highlight the uneven nature of the economic recovery.
Adding to the narrative, new trends for corporations have emerged. A recent survey from the Nikkei revealed over 90.8% of CEOs were considering price hikes within the next six months. This widespread sentiment points to persistent cost pressures as CEOs adjust to the realities of soaring raw material prices and the depreciated yen.
With pricing strategies under discussion, the CEO survey reflects the sentiment among firms facing economic uncertainty. A continued inflationary environment, partly attributed to variations in currency markets, remains a concern for business leaders as they strategize within the changing economic climate.
The volatility of the stock markets highlights not only the immediate impact of U.S. economic data on Japan but also the broader trends affecting corporate pricing strategies and economic confidence. With many domestic companies contemplating price increases to combat rising costs, the interplay between these trends will shape the economic outlook for the foreseeable future.
Economists and market observers will continue to monitor these developments closely as Japan navigates the complex waters of domestic and international economic pressures. The performance of the stock market, employment figures, inflation rates, and corporate pricing intentions will all be key indicators to watch as 2024 progresses.