Why were Japan bank stocks sold? 【Economic Column】

Financial instability spread around the world in the wake of the sudden bank failure in the United States on March 3. In Japan, bank stocks fell across the board, with some banks plunging more than 10% in a single day. Why have bank stocks been sold so much Japan the financial system is supposed to be relatively healthy? We covered the background. (Economic Affairs Department Reporter: Mitsutoshi Saito)

Financial instability spreading around the world

On March 3 and 10, a series of U.S. bank failures occurred.

Financial instability that spread in the wake of this spread to Europe on the 12th, and the management problems of Credit Suisse, a major Swiss financial group, amplified market anxiety.

Meanwhile, global financial markets were greatly shaken, and on the Tokyo stock market, the Nikkei Stock Average fell by more than 15 yen at one point on March 3.

There were times when the price dropped by more than 13 yen on the 500th and more than 14 yen on the 700th.

The level of decline in bank stocks in Japan, the United States and Europe is

The decline in stock prices was led by banks, other financial stocks.

In Europe and the United States, bank stocks plummeted, and bank stocks of all sizes fell sharply across the board in Japan.

So how much did the price of bank stocks fall?

Let's take a look at the stock indices of the United States (KBW Nasdaq Bank Stock Index), Europe (Stoxx Europe 600 Bank Stock Index), and Japan (Topix Banking Index), which are composed of major bank stocks.

If the stock index on March 3, before the failure of the US bank, is 9, as of March 100, the US fell 3.28%, Europe 15.9%, and Japan 14.5%.

Looking at the graph during this period, we can see that the rate of decline in bank stocks in Japan has been at a level similar to that of European and U.S. banks, which are located at the epicenter of the earthquake.

The reason why Japan bank stocks fell sharply

Amid widespread financial instability in Europe and the United States, officials from the government and the Bank of Japan believe that the financial system in Japan is stable and that its impact on financial institutions will be limited.

So why have bank stocks been sold so heavily in a Japan that is far from Europe and the United States, the epicenter of financial instability, and whose impact is said to be limited?

Market participants all agreed that interest rates had turned from rising to declining.

In December last year, the Bank of Japan revised its large-scale monetary easing measures and raised the upper limit of the fluctuation range of long-term interest rates to around 12.0 percent.

In response, long-term interest rates rose.

Bank stocks will continue to rise on the view that higher interest rates will boost bank earnings.

Some overseas investors and domestic institutional investors had strengthened their stance of selling Japan government bonds and buying bank stocks on the expectation that the Bank would further revise its monetary easing measures and interest rates would rise.

However, American banks suddenly went bankrupt and long-term interest rates plummeted as financial instability spread.

Investors' attitude has shifted to "buying Japan government bonds and selling bank stocks."

In other words, the magnitude of the reaction to the continued rise in stock prices led to a sharp decline in stock prices.

The other view is that the current decline in global bank stocks in parallel may be a new form of financial instability.

Taku Imamura, Director
, Marubeni Economic Research Institute: "The current financial crisis was triggered by the bank consolidation spree, but this alone does not mean anything new compared to past bank failures. However, in this age where information has spread quickly on social media and financial transactions on smartphones have become commonplace, the speed at which financial institutions fall into bankruptcy and the speed at which financial instability spreads around the world are completely different from the past. The degree of amplification of financial instability and the magnitude of the "wave" that will spread to the world may be greater than ever. Although the direct impact on Japan was limited this time, we should assume that if the wave of financial instability becomes even larger, it may affect Japan."

What to read from the plunge in bank stocks

Credit Suisse was bailed out in the form of an acquisition by fellow Swiss financial giant UBS with the involvement of Swiss financial authorities.

In line with this, six central banks in Japan, the United States, and Europe announced that they would work together to expand the supply of U.S. dollar funds to the market.

As a result of these extraordinary responses, market turmoil has subsided for the time being.

Bank stocks are also known as "economy-sensitive stocks."

What can we read from that sudden plunge?

While keeping an eye on developments in the global economy and financial institutions, I will continue to pay attention to developments in bank stocks.

Upcoming

Next week, the Bank of Japan's Tankan = Short-term Economic Survey of Enterprises will be released on the 3rd.

Although many private-sector forecasts suggest that the economic sentiment of large firms and manufacturers will deteriorate for the fifth consecutive quarter, attention will be paid to how concerns such as the slowdown in overseas economies and an increase in purchasing costs will affect business confidence.

In addition, next week, US employment-related economic indicators will be released one after another, and employment statistics will be released on the 5th.

It will be interesting to see how the problem of labor shortage, which is a factor in high prices, appears in statistics.