As of the time of writing, the TOPIX index and the [unknown index] have both fallen by more than 4%. These two benchmark stock indexes fell 3.24% and 2.49%, respectively, on Thursday. At the same time, the exchange rate of the yen against the US dollar rose to 149.55 yen per US dollar, close to the highest level since March, putting pressure on Japan's export-oriented economy.$Nikkei 225 (.N225.JP)$In addition, the financial reports released by companies in post-market trading on Thursday were also disappointing. Intel's third-quarter performance outlook was disappointing and announced layoffs of 0.015 million people. Amazon's third-quarter profit guidance was also lower than expected.

The Bank of Japan unexpectedly raised interest rates on Wednesday and announced detailed plans to reduce its massive bond purchase program, indicating its continued willingness to normalize monetary policy. The Bank of Japan raised its policy rate by 15 basis points to 0.15%-0.25%, compared to market expectations that it would remain unchanged. The bank also announced that it would reduce its monthly bond purchases to 3 trillion yen by the first quarter of 2026, reducing the quarterly purchase by about 400 billion yen, which was considered a slightly more aggressive cut than the commonly believed reduction of bond purchases by half within two years.

In addition, Bank of Japan Governor Haruhiko Kuroda reiterated his hawkish stance at a press conference after the rate decision was announced. Kuroda said that if the price outlook became reality, the Bank of Japan would raise interest rates again. He said that 0.5% is not a specific upper limit on interest rates, and that Japan's natural interest rate still has a lot of uncertainty. We can say that short-term interest rates are still far below the level that might make people wonder if we are close to the neutral level.

After the Bank of Japan unexpectedly raised interest rates and Kuroda made hawkish comments, most Bank of Japan observers are re-evaluating the interest rate path and bringing forward the timeline. According to a survey conducted on Thursday, about 68% of the 41 surveyed economists expected the Japanese policy rate to rise from 0.25% to 0.5% by the end of this year.

Former Bank of Japan board member Kazuo Momma said that the bank's major policy change this week made it extremely likely that rates would hike again in October and may again in January. He pointed out that the current basic stance of the Bank of Japan seems to be that as long as the economy is not significantly affected, they can continue to raise interest rates due to extremely low real interest rates. He added: "This is a huge change, as the weak yen and rising wages seem to be the cause. Even I had to radically change my views." The Bank of Japan's policy rate is currently 0.25%, still far below the recent core inflation rate of 2.6%.

The fall on the Japanese stock market on Friday was to some extent influenced by the fall on Wall Street overnight. On Thursday, the three major US stock indexes fell across the board, and the weakness in a series of US economic data once again raised concerns about the possibility of the US economy falling into recession.

Data shows that the number of initial jobless claims in the United States for the week ending July 27 was 0.249 million, higher than the market's expected 0.236 million and the previous value of 0.235 million. The US ISM manufacturing PMI for July was 46.8, a new low since November 2023, lower than expectations of 48.8 and the previous value of 48.5. US construction spending in June fell 0.3% month-on-month, the largest drop since October 2022. The market expected an increase of 0.2% month-on-month, and the previous value was revised from -0.1% to -0.4%.

These economic data are causing concern that if the Federal Reserve's action is too slow, it may pose a risk to the US economy as the suppressive effects of high interest rates become increasingly apparent. Jeffrey Gundlach, the "new bond king" and founder of DoubleLine Capital, said the Federal Reserve should have initiated an interest rate cut cycle at Wednesday's policy meeting. He believes that when the Federal Reserve actually begins to cut interest rates, it may already be too late. He explained that the US economy is not so strong, the labor market is weakening, and part of the reason is that the unemployment rate is rising.

$Amazon (AMZN.US)$,$Intel (INTC.US)$Please translate as I requested: Intel and Amazon. The companies' financial reports released on Thursday after the US market closed were also disappointing.

Senior economist Jose Torres of Interactive Brokers said: "As many economic factors converge, the market is approaching panic mode, which supports investors fleeing risky assets." "The headwinds in this market are too great, especially considering that the pricing of stocks is perfect."

At the same time, as investors increase their bets on a rate cut by the Federal Reserve, US bonds continue to rise. The two-year Treasury yield, which is sensitive to policy, hit a 14-month low, and the benchmark 10-year Treasury yield continued to fall after falling below 4% yesterday.

Investors are currently closely watching the US July non-farm payrolls report released tonight to learn about the state of the US labor market. The market currently expects that the US non-farm employment population will increase by 0.175 million (the previous value was 0.206 million), the average hourly wage will increase by 3.7% year-on-year (the previous value was 3.9%), and the unemployment rate will remain at 4.1%.

Chris Senyek, chief investment strategist at Wolfe Research, said: "The labor market has been sending warning signals for the past few months. History shows that Powell has walked a very delicate line in waiting too long before starting the rate cut before it is too late."

Editor/ping