Steep Drop in Japan’s Nikkei 225 Drags Major Asia-Pacific Stock Indexes Lower

Most of the major Asia-Pacific stock indexes are down sharply following a plunge in Japanese shares. China stocks, however, are bucking the trend with a slight gain.

Japanese stocks slumped on Monday, tracking Wall Street’s sharp decline over the weekend, after Federal Reserve official James Bullard surprised markets by signaling that the U.S. central bank might raise interest rates sooner.

Heavy selling across the board at the Tokyo Stock Exchange dragged down the other regional indexes.

Meanwhile, Chinese shares were underpinned after the country announced that the one-year Loan Prime Rate (LPR) was kept unchanged at 3.85% while the five-year LPR was also held steady at 4.65%. That was in line with expectations of majority of analysts in a snap Reuters poll, who had predicted no change to the one-year Loan Prime Rate as well as the five-year LPR.

Cash Market Performance

In the cash market on Monday, Japan’s Nikkei 225 Index it trading at 27980.87, down 983.21 or -3.39%. Hong Kong’s Hang Seng Index is at 28533.51, down 267.76 or -0.93% and South Korean’s KOSPI Index is trading at 3228.30, down 39.63 or -1.21%.

In China, the benchmark Shanghai Index is trading 3529.05, up 3.95% or +0.11% and in Australia, the S&P/ASX 200 Index is at 7237.40, down 131.50.

Nikkei Plunges to 1-Month Low

Heavy selling was seen across almost all sectors, with the Tokyo Stock Exchange’s 33 industry sub-indexes trading lower, while just one stock climbed in the benchmark Nikkei. The Nikkei share average fell below 28,000 for the first time since May 20.

“The Japanese market is reacting too much. First of all, rate hikes are signs of an economic recovery,” Shuji Hosoi, senior strategist at Daiwa Securities, said. “But Japan needs to find its own consistent reason for a market rebound as Japanese companies are already speeding up vaccine rollouts for their employees. A steady vaccine rollout could be a major reason for an economic recovery.”

South Korea Stocks Track Wall Street Losses on Hawkish Fed

South Korean shares fell on Monday, catching the tailwind from a retreat on Wall Street, as investors remained wary of a more hawkish stance from the U.S. Federal Reserve.

Among heavyweights, chip giants Samsung Electronics and SK Hynix fell 0.75% and 1.61%, respectively, while battery maker LG Chem and internet giant Naver slid 0.12% and 0.38%, respectively.

Australian Shares Drop as Fed Official’s Hawkish View Spooks Investors

Australian shares on Monday were set for their steepest fall in nearly five weeks, as they tracked a sell-off on Wall Street in the previous session on comments from a Federal Reserve official on sooner-than-expected rate hikes.

In the domestic market, financials declined the most, shedding more than 3%. The so-called “Big Four” banks fell between 2.1% and 4.4%.

Commodities also continued to lose ground. Gold stocks lost nearly 2%, with sector heavyweight Newcrest Mining dipping 1.3%. Energy stocks were down 1.8%, with Viva Energy slipping 1.1%.