According to Cailian Press on September 5th (Editor Xiaoxiang), once again at the beginning of the month, the Japanese market encountered a setback.

On Thursday, the Nikkei 225 index fell for the third consecutive trading day, widening the decline this month to 5%. This scene undoubtedly once again caused panic among many Japanese market investors, because the catastrophic crash scene on 'Black Monday' last month still remains in the minds of many people.

From the perspective of the market trend, the Japanese market clearly did not stop the decline successfully after yesterday's more than 4% drop. The Nikkei 225 stock index, which is dominated by technology stocks, initially fell by 1.9%, although it quickly recovered and even briefly turned the decline into an increase during the day, but eventually fell by more than 1% for the whole day. The broader TOPIX index, which covers more constituent stocks, also experienced a similar roller-coaster trend.

So, is this drop in the Japanese stock market considered a mini version of 'Black Monday' last month? What are the similarities and differences between the current situation in the Japanese market and the beginning of last month?

Similarities and Differences

From the background of the news, there are obviously some similarities between the two. For example, before the historic crash of the Japanese stock market on 'Black Monday' on August 5th, the weak performance of US non-farm payroll data in July had already ignited panic in global markets. Similarly, the lackluster performance of the US ISM Manufacturing PMI data before the crash on Wednesday also caused early concerns in the US market.

Hiroshi Namioka, Chief Strategist at T&D Asset Management in Japan, pointed out that 'For the Japanese stock market, which has many export-oriented manufacturing companies and is considered to be a cyclical stock market in the world, the weak results of the ISM Manufacturing Index can easily have a negative impact.'

However, in terms of this week's decline, the situation is clearly not as serious as it was back then. Some industry insiders compare multiple sets of data and believe that the volatility and market dynamics in the Japanese market this time seem to be completely different from the downward trend a few days before the crash on August 5th.

From the leading sectors, the most obvious difference can be felt. In August, financial stocks led the market with double-digit percentage declines, while in comparison, the recent declines in the leading sectors have been relatively mild and more focused on stocks related to semiconductor chips and companies involved in the commodity market, which actually have more bearish factors in their own industries. For example, whether AI investments can deliver returns, and the sharp decline in commodity prices.

(Differences in the leading sectors of the Japanese market. Top three downward trends at the beginning of last month: insurance, brokerage, banks; top three downward trends at the beginning of this month: industrial machinery, shipping, mining)

Looking at the trading volume, the trading volume in the Japanese market in the first three trading days of September has also decreased by about 43% compared to the same period last month.

In addition, last month, the hawkish stance of the Bank of Japan overturned currency and interest rate trading strategies, but this month, the Japanese stock market did not become the center of global market sentiment changes like it did back then.

(The decline of the TOPIX index in USD terms is not significant in the global market)

Last month, individual investors in Japan were forced to sell stocks to liquidate their bloated margin trading positions, which was one factor that amplified the decline in the Japanese market at that time. However, Yusuke Sakai, a senior trader at T&D Asset Management, said that we are unlikely to see panic selling like before.

Caution is still needed.

Of course, despite the many differences, investors may still need to be cautious about further unwinding of the yen carry trade, which was one of the main causes of last month's Japanese stock disaster. As of Thursday's Asian session, the USD/JPY has tested as low as around 143.30, hitting a new one-month low.

Looking at the recent trend over the past two trading days, the yen's increase appears significantly greater compared to other non-US currencies.

In addition, despite the sharp drop on Wednesday, Japanese stocks have not been able to stop the bleeding on Thursday, which may also warrant heightened caution from many investors towards potential unknown risks. After the major drop on last month's 'Black Monday', Japanese stocks actually experienced a significant rebound on the second day after 'Black Monday'.

Masaru Fuegawa, Head of Trading at Phillip Securities, pointed out that "due to the sharp decline of the market in August, many investors' trauma has not yet healed and they are prone to overreact. After the release of August's US non-farm payroll data this Friday, the month will also see major risk events such as the Fed's decision. The unstable market conditions may continue."