Asian indices are in a rout as markets fall due to the Bank of Japan's rate hike and Yen appreciation

New Delhi [India], August 5 Asian stock markets experienced significant declines early on Monday, with Japanese indices facing major losses. The Nikkei 225 fell over 1600 points, or 4.85%, to 34,247.56, marking a 20% drop from recent highs.

The Bank of Japan’s anticipated rate hike pressured the markets, causing Yen Carry trades to unwind as the Yen appreciated. Naka Matsuzawa, chief strategist at Nomura Securities, noted that foreign investors are pulling out of Japanese stocks due to concerns about a potential U.S. recession. He mentioned that the decline isn’t due to Japan-specific factors and that markets are still searching for stability.

Matsuzawa does not expect a global recession but anticipates market volatility until the U.S. Federal Reserve reduces rates, which investors expect by September.

In Taiwan, the Taiwan Weighted index fell by over 6%, while Singapore's Straits Times index dropped around 3%. Globally, markets are reacting to the Sahm Rule's activation on Friday, indicating a potential U.S. recession as unemployment hit 4.3%. The Sahm Rule, named after Claudia Sahm, is known for its accuracy in predicting recessions.

Ajay Bagga, Banking and Market Expert, suggested that while global sentiment is weak, strong domestic liquidity might cushion the Indian markets. However, Indian markets are expected to start lower due to global trends.

On Friday, Indian markets closed sharply lower, with the Sensex and Nifty down by 1.1-1.2% at 80,981.95 points and 24,717.70 points, respectively.