The stock market in Japan is falling sharply

Japanese shares fell sharply on Friday, after Wall Street fell on concerns about the US economy the previous day. The rise of Japan's currency, the yen, against the dollar has also had an influence.

The benchmark Nikkei 225 closed Friday's session down 5.81%, or 2,216.63 points, at 35,909.70 points - which, according to aljazeera.com, was the second largest point drop in history and the higher in percentage terms since March 2020 - at the beginning of the pandemic.

Also on Friday, the extended Topix index lost 6.14% or 166.09 points, reaching 2,537.60 points.

"The chain of declines of the stock market has not stopped", warned IwaiCosmo Securities, following the decline of the American and European indices, emphasizing: "Most of the shares traded in Tokyo faced sales from the beginning of the stock market session on Friday, after a significant decline on the previous day".

On Wall Street, all three major indexes ended Thursday's session lower as weak manufacturing data raised concerns about a U.S. recession.

"Following the drop in New York stocks, the Bank of Japan's (BoJ) further interest rate hike and the continued appreciation of the yen, market sentiment is weakening rapidly," Daiwa Securities noted.

The yen appreciated after the Bank of Japan decided to raise interest rates last week and the US Federal Reserve kept interest rates on hold, hinting at a cut in September.

The dollar hit 149.24 yen on Friday, down from 149.66 yen on Thursday and around 152 yen before the BoJ's monetary policy decision last Wednesday, according to Al Jazeera.

Among major stocks, Japanese electronics and semiconductor company Tokyo Electron Ltd. fell 12% to 27,055 yen on Friday, while automatic test equipment maker Advantest Corp. - by 8% to 6,313 yen. Shares of Toyota Motor Corp. Honda Motor Co. fell 4.2% to 2,585 yen. - by 3.4%, at 1,522 yen, the shares of Nissan Motor Co. - by 6.9%, to 442 yen.

Yugo Tsuboi, chief strategist at Daiwa Securities, was quoted by economictimes.indiatimes.com as saying: "Momentum in the US market turned negative overnight as recession concerns grew. This put a lot of pressure on Japanese stocks today (aka Friday). In Japan, the market is uncertain whether the BoJ will raise interest rates again this year, or by how much. Higher interest rates could strengthen the yen, which could hurt exporters."

On Friday, at the Tokyo Stock Exchange, the brokerage sector lost 11%, and the banking sector - 8.4%. The Nikkei volatility index was near 28%, the highest since April 19.

• Kazuo Momma, former executive in the Bank of Japan: "BoJ - may raise interest rates in October"

The Bank of Japan's policy shift - last week - makes another interest rate hike very likely in October and increases the potential for quarterly hikes, according to a former central bank executive in charge of monetary policy.

"The chances are very high for an interest rate hike in October," said Kazuo Momma, a former director at the BoJ, as quoted by japantimes.co.jp, adding: "The reaction function of the BoJ's policy has changed now. This means, of course, that there is also a chance for another increase in January."

Kazuo Momma's remarks could change views among BoJ watchers about the likely path of interest rates following signals on Wednesday, when the central bank raised borrowing costs for the second time this year. The BoJ's basic position now appears to be that because real interest rates are extremely low, they can continue to rise as long as a major shock does not hit the economy, Momma said.

The policy rate is now 0.25%, well below the most recent core inflation level of 2.6%.

"This is a huge change," said Momma, now an executive economist at Mizuho Research & Technologies, noting: "The change is due to the weak yen and the expansion of wage growth. I myself had to significantly adjust my vision."

We remind you that the Bank of Japan decided, on March 19, to raise the reference interest rate for the first time in the last 17 years, ending a long-term policy of negative interest rates aimed at stimulating the economy.

At the end of the monetary policy committee meeting on that date, the Bank of Japan announced that it would apply a short-term reference interest rate between 0 and 0.1%, compared to minus 0.1%, which was the level at which it was from January 2016.

This was the first decision to increase the cost of credit adopted by the BoJ after February 2007.

Japan's central bank has an inflation target of 2% that it has used as a benchmark to determine whether Japan has finally escaped deflationary trends. But the bank remained cautious about "normalizing" monetary policy or abandoning negative interest rates on loans, even after data showed inflation had moved closer to target in recent months.

In March, some analysts cited by CNBC predicted that the Bank of Japan would change the course of monetary policy in the next two months. According to them, while most major central banks are looking to ease monetary policy after more than two years of aggressive tightening aimed at combating inflation, the Bank of Japan's decision is in the opposite direction.

In an interview earlier this month, the governor of the Bank of Japan suggested a chance of an interest rate hike in the second half of the current year.