Trump Tariffs Shake Global Markets, Hit Japan Banks

Trump’s sweeping tariffs trigger global market selloff, crushing Japan bank stocks and driving investors into safe havens like gold and U.S. Treasuries.

Trump’s Tariffs Rattle Global Markets, Trigger Japan Bank Selloff

As financial markets worldwide reeled under the weight of sweeping new U.S. trade tariffs, Japanese bank stocks found themselves at the epicenter of a deepening global selloff. The sudden jolt stemming from President Donald Trump’s latest trade offensive has reignited recession fears, catalyzed a surge in safe-haven assets, and cast uncertainty over central bank policy responses from Tokyo to Washington.

Japanese Banks Crushed by Tariff Fallout

On Friday, Japan’s financial sector was dealt a harsh blow. Shares of major banks plummeted, dragging the Nikkei 225 down more than 4% in a single day. By the week’s end, the index had lost nearly 10 percent, its steepest drop in more than five years.

The carnage came despite market closures in China, Hong Kong, and Taiwan, highlighting the intensity of investor concern. In Tokyo, the banking sector bore the brunt, with the Topix Banks Index diving 11%, enough to trigger automatic trading halts, or “circuit breakers,” that rarely get activated.

The timing of this meltdown is no coincidence. Trump’s newly announced tariffs, described by analysts as the most severe trade restrictions imposed by the U.S. in over a century, have shaken confidence in the already fragile post-pandemic recovery.

Flight to Safety Sends Yields Plummeting

Investors, spooked by the prospect of a global economic downturn, fled risk assets en masse. U.S. Treasury yields sank, with the 10-year benchmark falling below 4% for the first time in six months. Japan’s bond market wasn’t spared the volatility, yields on 10-year Japanese Government Bonds (JGBs) experienced what may be their sharpest weekly drop in over 30 years.

“Markets are pricing in not just rate cuts, but a sharp deterioration in global growth,” said David Bahnsen, chief investment officer at The Bahnsen Group. “If these tariffs remain, a recession by the second or third quarter is very much on the table.”

Analysts also warn of a potential shift in Bank of Japan policy, which had been slowly gearing toward rate normalization after decades of near-zero interest rates. With growth now threatened, any tightening could be postponed indefinitely.

U.S. Stocks See Historic Losses

Stateside, the picture was just as bleak. U.S. stock markets lost a staggering $2.4 trillion in value in a single day—the worst selloff since March 2020 at the height of COVID-induced panic. The S&P 500, Dow Jones, and Nasdaq all saw steep losses, while futures trading on Friday suggested more pain ahead.

Technology and financial sectors were hit hardest, underscoring the broad impact of Trump’s tariffs. Nasdaq futures tumbled over 1%, and S&P 500 futures shed 0.9%, pointing to a continued risk-off sentiment.

Tariffs Revive Fears of Stagflation

For central banks, the challenge is now compounded. Inflation remains persistent in several major economies, while growth prospects are deteriorating—a dangerous combination known as stagflation.

“Central banks are caught in a bind,” explained David Doyle, head of economics at Macquarie Group. “Falling growth demands stimulus, but inflation limits their flexibility. We could see a very muted policy response compared to past crises.”

The Federal Reserve, already walking a tightrope between curbing inflation and supporting the economy, may face increased pressure to pivot. Fed Chair Jerome Powell is scheduled to speak later Friday, and markets are on edge, awaiting any signal about the central bank’s next move.

Currency Markets Reflect Investor Anxiety

The fallout wasn’t limited to equities and bonds. Currency markets flashed red across the board. The Japanese yen strengthened sharply against the U.S. dollar, which fell nearly 2.2% on Thursday—its steepest daily decline in over two years. On Friday, the dollar slipped further to 145.41 yen.

Risk-sensitive currencies like the Australian and New Zealand dollars each fell more than 1%, reflecting the global risk-off mood. The euro, meanwhile, gained 0.39%, rising to $1.1095.

The U.S. Dollar Index—a key measure of the greenback’s strength against a basket of other major currencies—hovered near a six-month low at 101.60.

Safe Havens Shine as Fear Grows

As panic swept through equity and currency markets, investors poured into traditional safe havens. Gold prices surged, inching closer to an all-time high. Spot gold traded near $3,104 an ounce on Friday, poised for its fifth consecutive weekly gain.

“Gold is benefiting from its role as the ultimate hedge in times of economic and geopolitical uncertainty,” said Barbara Lambrecht, commodity strategist at Commerzbank. “With global growth at risk and inflation still a concern, investors are seeking security.”

Oil, typically viewed as a proxy for economic health, continued its downward slide, adding to concerns that energy demand could weaken sharply if recession sets in.

What’s Behind Trump’s Tariff Gambit?

Trump’s tariffs are aimed at reducing U.S. reliance on foreign goods and pressuring global supply chains to shift back to American soil. While this “America First” approach has rallied support among some domestic manufacturers, it has alarmed economists who warn of long-term damage to trade flows and global economic stability.

Trade experts are drawing parallels to the Smoot- Hawley Tariff Act of 1930, which exacerbated the Great Depression by triggering retaliatory tariffs worldwide. “We are walking a historical tightrope,” noted economist Douglas Irwin, author of Clashing Over Commerce. “The risks of policy miscalculation are enormous.”

What Comes Next?

The question now is whether the White House will double down on tariffs or seek a diplomatic off-ramp to avoid a full-blown economic crisis. Historically, Trump has pivoted under market pressure, especially during his previous term. However, with political calculations driving trade decisions, it’s unclear whether such flexibility remains.

Jon Withaar, a hedge fund manager at Pictet Asset Management, captured the mood succinctly: “Japanese banks are caught in the crossfire of declining rate expectations and the growing threat of global recession. It’s hard to see a path forward that doesn’t involve more volatility.”

A Market on Edge

The shockwaves from Trump’s tariff decision are being felt across every corner of the global financial system—from Tokyo banks to Wall Street trading floors. As investors retreat into safety, policymakers face tough decisions about how to respond without fueling further economic instability.

In the days ahead, all eyes will be on central banks and the White House. Whether this storm deepens or dissipates may hinge on what happens next in Washington—and whether global markets believe a course correction is still possible.

Source:  (Reuters)

(Disclaimer:
This article is intended for informational purposes only and does not constitute financial or investment advice. Always consult a licensed professional before making financial decisions.)

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