U.S. tariff deepens selloff, Japanese bank stocks under pressure
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Japanese equities extended a steep selloff on Friday, driven by renewed concerns over U.S. President Donald Trump’s aggressive tariff measures and their implications for global growth and monetary policy. The Nikkei fell to levels not seen in months, eyeing a weekly drop of around 9%, its sharpest decline in more than five years. Local banking shares encountered outsized losses, amid speculation that weakening economic momentum might delay interest rate normalization by the Bank
of Japan.
Banking Sector Takes a Hit Japan’s bank index plummeted by as much as 11% in intraday trading, triggering circuit breakers and underscoring the extent of investor panic. The slump follows similarly dramatic declines in U.S. financial stocks, where Citigroup, Bank of America, Morgan Stanley, and Goldman Sachs each shed between 9% and 12% on Thursday. Market participants fear that elevated trade barriers, combined with a potential slowdown in U.S. economic activity, could weigh heavily on the profitability of financial institutions. With bond yields collapsing—benchmark 10-year U.S. Treasuries pierced below 4%—the prospects for expanding net interest margins in either Japan or the U.S. appear increasingly tenuous.
Global Flight to Safety Intensifies A wide-ranging flight to quality emerged in response to Trump’s steepest tariff salvo in over a century. Bullish positions across equities were unwound rapidly, sparking another leg down for risk-sensitive sectors such as banking, industrials, and energy. The S&P 500 shed $2.4 trillion in market capitalization, while Wall Street indexes booked their worst single-day declines since 2020. U.S. and European equity futures suggest that the selloff may persist into the next trading session.
Simultaneously, U.S. Treasuries continued to rally, driving yields lower in both intermediate and longer-dated maturities. The 10-year Treasury yield touched a six-month low near 3.97%, while the two-year yield slipped to 3.61%, levels last seen in October. Traders are now pricing in more than 100 basis points of Federal Reserve rate cuts by year-end, reflecting mounting growth concerns. However, some analysts caution that sticky inflation dynamics could limit the Fed’s policy flexibility, even if economic headwinds intensify.
Currency and Commodities Reactions Safe-haven flows propelled the yen to a multi-year high against the dollar, which dropped 2.2% in the previous session. The euro also advanced, underscoring the greenback’s vulnerability as investors reevaluate the trajectory of U.S. monetary policy. Meanwhile, gold remained near record levels, bolstered by heightened macro uncertainty and concerns about dollar debasement. Crude oil extended its retreat, reflecting fears of a potential global downturn in demand.
Policy and Outlook With the global economy at a crossroads, investors will be monitoring both near-term policy signals and longer-term structural shifts, especially if retaliatory tariffs from major trading blocs exacerbate economic stress. Central banks such as the Bank of Japan may be forced to postpone previously anticipated rate hikes, further compressing bank profit margins. Federal Reserve Chair Jerome Powell’s upcoming remarks could shape sentiment around potential policy responses in the U.S. For now, elevated uncertainty prevails, suggesting that defensive positioning may remain a dominant theme as markets absorb ongoing trade shocks and brace for potential follow-up measures from major economic powers.
Banking Sector Takes a Hit Japan’s bank index plummeted by as much as 11% in intraday trading, triggering circuit breakers and underscoring the extent of investor panic. The slump follows similarly dramatic declines in U.S. financial stocks, where Citigroup, Bank of America, Morgan Stanley, and Goldman Sachs each shed between 9% and 12% on Thursday. Market participants fear that elevated trade barriers, combined with a potential slowdown in U.S. economic activity, could weigh heavily on the profitability of financial institutions. With bond yields collapsing—benchmark 10-year U.S. Treasuries pierced below 4%—the prospects for expanding net interest margins in either Japan or the U.S. appear increasingly tenuous.
Global Flight to Safety Intensifies A wide-ranging flight to quality emerged in response to Trump’s steepest tariff salvo in over a century. Bullish positions across equities were unwound rapidly, sparking another leg down for risk-sensitive sectors such as banking, industrials, and energy. The S&P 500 shed $2.4 trillion in market capitalization, while Wall Street indexes booked their worst single-day declines since 2020. U.S. and European equity futures suggest that the selloff may persist into the next trading session.
Simultaneously, U.S. Treasuries continued to rally, driving yields lower in both intermediate and longer-dated maturities. The 10-year Treasury yield touched a six-month low near 3.97%, while the two-year yield slipped to 3.61%, levels last seen in October. Traders are now pricing in more than 100 basis points of Federal Reserve rate cuts by year-end, reflecting mounting growth concerns. However, some analysts caution that sticky inflation dynamics could limit the Fed’s policy flexibility, even if economic headwinds intensify.
Currency and Commodities Reactions Safe-haven flows propelled the yen to a multi-year high against the dollar, which dropped 2.2% in the previous session. The euro also advanced, underscoring the greenback’s vulnerability as investors reevaluate the trajectory of U.S. monetary policy. Meanwhile, gold remained near record levels, bolstered by heightened macro uncertainty and concerns about dollar debasement. Crude oil extended its retreat, reflecting fears of a potential global downturn in demand.
Policy and Outlook With the global economy at a crossroads, investors will be monitoring both near-term policy signals and longer-term structural shifts, especially if retaliatory tariffs from major trading blocs exacerbate economic stress. Central banks such as the Bank of Japan may be forced to postpone previously anticipated rate hikes, further compressing bank profit margins. Federal Reserve Chair Jerome Powell’s upcoming remarks could shape sentiment around potential policy responses in the U.S. For now, elevated uncertainty prevails, suggesting that defensive positioning may remain a dominant theme as markets absorb ongoing trade shocks and brace for potential follow-up measures from major economic powers.