The Next Global Recession Could be Nigh

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( — February 18, 2016) — In recent weeks, the Japanese stock index Nikkei experienced its biggest loss in three years, with various sources estimating the drop being between 5.1% and 5.4%. This fall of around 950 points is the latest in a chain of recent sell-offs; the London exchange closed near its four-year low-point, and even the normally reliable tech index NASDAQ went down by 2% the previous day. This has sparked murmurs of global economic concern about another potential financial crisis.

The markets of other Asian countries such as South Korea and Hong Kong reopened on Wednesday 10th, following the Lunar New Year. China is due to begin trading again the following week. It is thought that stock brokers in Japan are following the lead of the American and European markets while so many of the Asian markets are closed. The impact of the global exchange’s current uncertainty on these countries remains to be seen.

The impact on foreign exchange rates

A potential financial crisis will hit smaller industries as hard as the global markets, particularly with regards to financial management. Currency brokerage firms are keeping a close eye on the state of the markets by analysing the stock exchange on their blogs and even posting automated real-time data to allow their clients to keep tabs on the situation.

The New York Times reported that, while the aim of these negative rates was to boost the country’s economy, Japan’s long-term status as a “safe-haven” investment has made its assets more desirable for traders. This could have a catastrophic impact on Japanese businesses who trade outside of their home nation. As the power of the yen’s exchange rate rises, it will greatly weaken their trade beyond Japan.

Not such a safe-haven anymore

Japan only adopted negative interest rates at the end of January 2016. This decision is already having poor consequences for the country’s economic downturn, as the yield on many bonds has also fallen below zero. This means that any investors purchasing these bonds this week will be doing so in the knowledge that they have effectively thrown their money away.

Traders are praying that a repeat of 2008’s economic disaster can be avoided, and accurate speculation will be tricky until China reopens its trading floor next week. However, China’s economy was already heading downhill, and domestic factors like the steady fall of oil prices are adding to experts’ worries.

If, in addition to that, Japan loses its safe-haven status, it’s no wonder Forbes have said that the effects of this could be “worse than the financial crisis.” What has already been an abysmal period for the global stock exchange may find itself dragging out even further.