Japan stocks plunge over 5% as Asia-Pacific markets resume sell-off on U.S.-China trade war worries

Japan Stocks Plunge Over 5% as Asia-Pacific Markets Resume Sell-Off on U.S.-China Trade War Worries

April 10, 2025 – Tokyo

Japanese stocks suffered their worst single-day decline in over a year on Thursday, with the Nikkei 225 closing down 5.4%, as fears of an escalating U.S.-China trade war reignited a broader sell-off across Asia-Pacific markets. Investor sentiment was rattled following a breakdown in high-level trade talks and a fresh round of tariffs threatened by both Washington and Beijing.

The broader Topix index also tumbled 5.1%, while the yen surged against the U.S. dollar, further pressuring export-heavy sectors such as automotive, electronics, and machinery. Shares of Toyota Motor Corp., Sony Group, and Fanuc Corp. all fell sharply, contributing to the market rout.

Regional Fallout

The turmoil wasn't limited to Japan. South Korea's KOSPI dropped 3.8%, and Australia's S&P/ASX 200 lost 2.7% amid global risk aversion. Hong Kong's Hang Seng Index fell 4.2%, weighed down by technology and real estate names, while mainland China's CSI 300 slid 3.5%, its worst session in months.

"Markets are pricing in a protracted stalemate between the world's two largest economies," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank. "There's growing concern that the trade war may not only persist but intensify, dragging global growth with it."

Tensions Escalate

Investor anxiety intensified after the latest round of talks between U.S. and Chinese negotiators ended without a resolution. The U.S. administration signaled it was preparing to impose additional tariffs on $100 billion worth of Chinese imports, while Beijing responded with threats of “strong countermeasures.”

Compounding the concerns, the U.S. Commerce Department announced new restrictions on semiconductor exports to Chinese tech firms, further straining relations and dealing a blow to already beleaguered tech stocks across Asia.

Safe Havens in Demand

As equities sank, investors flocked to traditional safe havens. The Japanese yen rose to a three-month high against the dollar, while gold prices surged above $2,200 per ounce. Yields on Japanese government bonds fell as demand for low-risk assets spiked.

Currency analysts warned that the strengthening yen could deal a fresh blow to Japan’s export sector, already reeling from weaker demand out of China and Southeast Asia. “This is a double whammy for Japanese exporters — falling global demand and a stronger yen,” noted Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Outlook Remains Uncertain

Despite hopes earlier this year that a trade détente might emerge, investors now appear braced for a prolonged standoff. Analysts at Nomura said they expect continued market volatility unless there’s a concrete breakthrough in negotiations.

“With each tit-for-tat escalation, the possibility of a quick resolution recedes,” said Nomura’s Asia-Pacific equity strategist, Miki Takahashi. “We're advising clients to remain defensive and reduce exposure to cyclical and export-driven sectors.”

The Japanese government, for its part, called for calm. Finance Minister Shunichi Suzuki said officials are closely monitoring market developments and are prepared to “take necessary actions” to stabilize the financial system if conditions deteriorate further.

Global Repercussions

Thursday’s sharp drop underscores how deeply intertwined the global economy remains and how quickly investor confidence can erode in the face of geopolitical uncertainty. As the trade war continues to dominate headlines, analysts warn that more pain could lie ahead for risk assets.

“Until there’s clarity on U.S.-China trade policy, markets will remain hostage to headlines,” said Morgan Stanley’s Asia strategist Chetan Ahya. “Investors should prepare for choppy waters in the weeks ahead.”