BoJ Rate Hikes Spook Markets: Will India Repeat 2024's August Sell-Off?
A sharp decline in Japan's yen against the dollar has raised concerns about a repeat of a major sell-off in Indian markets. The yen has slipped past 163 to the dollar, its weakest level in roughly four decades, after a wider trade deficit reignited bets that the Bank of Japan will keep raising rates.
The last time this happened, in August 2024, it wiped out Rs. 15 lakh crore of Indian equity value in a single session. The yen's fall was swift and brutal, strengthening from around 162 to 153 against the dollar in about two weeks after the BoJ delivered a rate hike investors weren't fully braced for.
The Nikkei 225 fell more than 20% over that stretch, including its worst single session since the 1987 crash. The shock didn't stay contained to Japan; India's Sensex fell 2.7% and the Nifty 50 dropped 2.68% on August 5, 2024 alone, erasing roughly Rs 15 lakh crore of investor wealth in a single day.
The question now is whether this scenario will repeat itself. Japan has spent close to three decades running interest rates near zero, and for just as long, that cheap yen has quietly funded a huge share of global risk-taking.