Japanese stocks get destroyed, bonds and gold surge as Brexit worries rattle markets

Photo by Chris McGrath/Getty Images

It’s not been a good day for Japanese markets. Not one bit.

Stocks have been crushed. Japanese government bond yields have fallen to fresh all-time lows while the Japanese yen has screeched higher, jumping to the highest level seen in years against a number of major currencies, including the US dollar.

There were twin factors that led to the remarkable price action, although neither would have come as a surprise to investors before the start of trade: the looming threat of the UK leaving the European Union when the nation goes to the polls next week, or Brexit, along with the decision from the Bank of Japan to leave monetary policy unchanged at its June policy meeting, something that was widely expected by most in financial markets.

Neither were earth shattering developments, merely a continuation of what had been expected to play out earlier in the week.

Such is the skittishness of markets in the lead up to the Brexit vote on June 23, something that is likely to continue in the days ahead without clear, definitive news to imply that a Brexit is looking unlikely.

The Nikkei 225 in Tokyo, already down more than 1% before the BOJ decision was announced, cascaded lower into the close, eventually finishing the session nursing a loss of 3.05%. At 15,434.14, the index finished trade at the lowest level seen since February 15 this year.

Helping to explain the sudden plunge in stocks, the Japanese yen soared in the latter parts of Asian trade.

The USD/JPY fell to as low as 104.04 at one point during the session, the lowest level seen since September 1, 2014.

Against the Australian dollar, often seen as a risk barometer for markets, the decline was even more severe, briefly trading as low as 76.89, the lowest level seen in four years.

Reflecting the bid in safe haven assets, Japanese government bond yields continued to decline, hitting fresh all-time lows in the process.

In late Asian trade, the benchmark 10-year yield currently sits at -0.208%. During the session bonds with duration’s ranging from 5 to 30 years all plumbed fresh record lows.

On the back of rising risk aversion, and assisted by US dollar weakness, the spot gold price has rocketed to above US$1,300 an ounce. At US$1,309.70, it currently sits at the highest level since August 2014.

Risk aversion is clearly taking hold, not just in Japan but in other markets.

And there’s still more than a week to go before the UK referendum is held. There’s some interesting times ahead.

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