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Japan stock prices stall as once touted 'Trump effect' goes into reverse

Market sources believe that fading expectations for the policies of U.S. President Donald Trump are behind the 414.5-point plunge in the Nikkei 225 on March 22.

    The sudden decline on March 22 was driven by a rising yen and a precipitous drop in U.S. share prices the previous day. The Dow Jones Industrial Average ended March 21 at 20,668.01 -- 237.85 points down from the previous day's close -- as progress on the Republican Party's replacement for the Affordable Care Act (Obamacare) looked increasingly fraught. Market worries also grew that Trump's economic policies, including a major tax cut and infrastructure spending, would stall.

    The U.S. uncertainty hit the Tokyo stocks of major exporters including automakers hard. Long-term interest rates also fell due to waning expectations for economic growth in Japan and the U.S., prompting worries of a negative impact on fund operations and a major drop in bank and insurance stock values. The foreign exchange market also reacted to the Dow Jones drop by buying yen and selling dollars, pushing up the value of the yen by 1.32 to 111.50 to the U.S. dollar by 5 p.m. on March 22.

    However, Daiwa Securities Group Inc. Chief Strategist Hirokazu Kabeya points out that the Dow is still riding high above 20,000, so the March 21 drop was "within the range of our assumptions. No one thought that it would be smooth sailing for the Trump administration's policies, so the stocks (pumped up by the 'Trump effect') simply came down to an appropriate speed."

    On the other hand, while the Dow shed 1.1 percent of its value on March 21, the Nikkei index fell by 2.1 percent -- a sharp reminder of Japanese stocks' weakness.

    "Japanese stocks have been propped up by high expectations for the Trump administration's policies. But jitters caused by those expectations retreating while the yen has risen made the (March 22) drop bigger," observes Sumitomo Mitsui Asset Management Co. Senior Strategist Masahiro Ichikawa.

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