Stock market fears worsen as central bankers 'fumble around in the dark'

Japanese stocks have slid to a 16-month low 

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The Independent Online

European stock markets opened slightly higher on Wednesday after another tough trading session in Japan that saw the Nikkei drop 2.3 per cent.

The FTSE 100 was up 0.8 per cent, Germany's DAX rose 1.2 per cent and France's CAC 40 improved 1.4 per cent after a disastrous seven day rout that has investors worried that central bankers have run out of ideas.

Michael Hewson, chief market analyst at CMC Markets UK, said that slowing economic growth and record low interest rates have hurt the capacity for banks to build up resilience and improve their profitability. 

"While it is easy the current sell-off is an over-reaction where banks are concerned confidence is everything, and as we know from 2008 once it is gone it is very difficult to get back," he said. "Central bankers around the world fumble around in the dark." 

In Japan, shares have slid to a 16-month low since the Bank of Japan's shock decision to cut intererest rates below zero at the start of the year.

The yen has continued appreciate, hitting its strongest since November 2014. A stronger yen makes Japanese exports less attractive.

Wednesday's slide followed a brutal trading session on Tuesday that saw Japanese shares drop 5.4 per cent, the worst one-day drop since June 2013.

Japanese government bond yields turned negative for the first time on Tuesday, meaning that investors were effectively paying to give money to the Japanese government.

Tomoichiro Kubota, a senior analyst at Matsui Securities Co. in Tokyo, told Bloomberg that Japanese stocks are suffered from a “triple punch”.

“We have worries over financial institutions in Europe, problems in the bond market, and concerns aren’t alleviated at all,” Mr Kubota said.

“There’s still a sense of wariness toward commodity-related corporate earnings in the US, so that’s a negative, plus the yen is being favoured as a place of refuge."

Australia’s A&P/ASX 200 was down 1.2 per cent, following European markets into a bear market, when prices fall at least 20 per cent over two months or more.

Chinese markets remain closed this week for the New Year holidays.