A sudden reversal rattled Asia-Pacific markets today. After opening higher, Japanese and South Korean equities abruptly plunged, with the Nikkei 225 rapidly extending losses. The sell-off spread across regional bourses, dragging Singapore, Malaysia, Vietnam, and Philippine markets lower. The A50 index tumbled up to 1%, weighing on Chinese and Hong Kong stocks.
Currency markets saw the US dollar strengthen, while Japan's 6-month government bonds extended their steep decline across multiple maturities. Analysts attribute the volatility to Bank of Japan Governor's strong hints of a December rate hike, which propelled short-term yen and JGB yields upward. Meanwhile, China's November CPI rose 0.7% YoY - the fastest pace since March 2024 - potentially complicating policy expectations.
The Nikkei 225 swung from nearly 1% gains to over 0.5% losses, while South Korea's KOSPI erased early advances. Australia's ASX 200 underperformed, and China's ChiNext Index briefly dropped 2%. Over 3,600 stocks declined across Shanghai, Shenzhen, and Beijing exchanges, with cultivated diamonds, biotech, and battery sectors leading losses. Hong Kong markets remained persistently weak.
Market analysts identify two key drivers: First, global liquidity concerns ahead of Japan's December policy meeting, as 10-year JGB yields breached 1.96%. The BOJ governor's explicit guidance on future rate hikes beyond 0.75% policy rate, coupled with inflation warnings, reinforced tightening expectations. Second, China's stronger-than-expected CPI data (0.7% YoY) - driven by food price rebounds - though core CPI (excluding food/energy) held steady at 1.2% for three consecutive months.
Global liquidity conditions appear constrained post-April's US tariff shocks, with cryptocurrency collapses signaling tighter conditions. Japan's "Bond Market Liquidity Stress Index" and BOJ surveys reveal deteriorating JGB liquidity since April. A recent 20-year bond auction recorded the lowest bid-to-cover ratio since 2012, with stress levels nearing 2008 peaks.
Historical analysis suggests limited impact: GF Securities notes yen typically strengthens pre-tightening but stabilizes post-decision, while Japanese equities see modest corrections. US markets generally consolidate, with 10-year Treasury yields remaining unaffected by prior BOJ moves. Current expectations suggest mild liquidity impact from potential BOJ action.
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