Global markets spiraled downward in the second week of June on numerous concerns, including the possibility that central banks would lessen stimulus actions. The gloom intensified June 13 when the World Bank cut its growth forecast for global GDP in 2013 to 2.2% from the 2.4% it had predicted in January, citing a deeper than expected recession in Europe accompanied by slower emerging market growth—including among the BRIC nations. The damage in Europe moderated somewhat on merger and acquisition news on June 14 as markets regained some ground, but the skies are by no means clear.
Investors, already spooked by eurozone troubles and slowing economic growth in China, reacted sharply to the May 22 hint by Fed Governor Ben Bernanke that quantitative easing could be cut back at some time in the future. When the Bank of Japan announced June 11 that it would take no additional action against climbing bond yields—yields that threaten to counteract its $1.4 trillion stimulus program—that announcement, and concerns that other central banks would follow suit, triggered a Nikkei selloff; the market dropped 6% in a single day.
The Nikkei was already into bear territory, losing some 20% since mid-May, and worried investors seeking shelter sent the yen soaring in value even as Japanese exports tumbled—exactly the opposite of what Prime Minister Shinzo Abe had hoped to achieve, as exports became more expensive and less desirable on the world markets.
Japan certainly faced a quiver full of problems as markets fell. In addition to all these worries, the absence of any action that could be what Abe had termed the “third arrow” in the quiver of Abenomics made investors begin to question whether Abenomics could indeed do as the prime minister intended: stimulate the Japanese economy out of its decade-long stagnation. The third arrow was supposed to be new trade-friendly legislation to spur private sector investment, and thus far it remains unloosed.
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But Japan is far from investors’ only concern when it comes to global investing, and Japan’s was not the only market that fell.
The benchmark interest rate at the Bank of Korea remained unchanged, as did the official cash rate at New Zealand’s central bank. The eurozone’s problems are of course far from over, and worry over Greece’s political stability raised its head once again as the shutdown of the state broadcasting system raised concerns about the viability of Greece’s ruling coalition—an uneasy alliance at best.