Stock Market Crash – Japanese Yen Connection: The trading session of Monday, August 5, 2024 is proving to be Black Monday not only for the stock markets of India but the entire world. The reason is the strength in the Japanese currency Yen and the threat of recession looming over the US economy. There has been chaos in the Japanese stock exchange Nikkei 225 index for the last two sessions. In Monday’s session, the Nikkei 225 index has fallen by 4750 points with a decline of about 13 percent.
Due to the strength of Yen, there has been a tsunami in the Indian stock market index BSE Sensex and NSE Nifty. The prices of midcap and smallcap stocks are falling like a pack of cards. But this crisis is not going to end here. The effect of the strength of Yen can be seen on a large scale on the Indian economy because these projects, which are being made through Japanese funding to strengthen India’s infrastructure, including railways, metro and bullet train projects, can create huge problems for these projects.
Strength in Japanese Yen increased trouble
On one hand, central banks around the world are exploring the possibility of cutting interest rates. Last week, in contrast, the Bank of Japan surprised everyone by raising interest rates from 0 – 0.1 percent to 0.25 percent. This is the highest level of interest rates in Japan in the last 15 years. Due to this decision of the Bank of Japan, the Japanese Yen is strengthening. Due to Japan’s decision to increase interest rates, investors in stock markets around the world seem ready to sell.
India’s infrastructure projects may be affected
This decision of Japan can have an impact on infrastructure projects in India and the companies building them. India has been getting a big benefit of zero percent interest rate in Japan. Loans have been available at very cheap rates to build infrastructure projects in India. Indian companies have also been raising capital in Japan due to cheap loans. Apart from laying a network of roads and highways in the country to bullet-metro projects, power companies have also benefited from this. In 2017, the Government of India had signed an agreement to provide 81 percent of the funds for the expenditure on the Ahmedabad-Mumbai bullet train projects for 50 years at an interest rate of 0.1 percent. But after the Bank of Japan made the loan expensive, private companies developing infrastructure for Japanese loans may have to pay interest on the loan.
More interest will have to be paid on Japanese debt
Loans linked to the Japanese currency Yen account for about 5.8 percent or $38.5 billion of India’s $663 billion external debt. After the Bank of Japan raised interest rates and the Yen strengthened as a result, companies that have taken loans from Japan at a rate of zero to 0.1 percent may now have to pay more interest.
Japanese investment in Indian stock market!
Due to cheap loans in Japan, Japanese investors have invested heavily in the Indian stock market in the last few years. In December 2015, Japanese investors had invested only about Rs 38000 crore, which has increased to over Rs 2 lakh crore in June 2024. Obviously, Japanese investors have also contributed to the rise in the Indian stock market.
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