Tokyo, Japan (BBN) – Asian shares have fallen sharply as investors react to the UK voting to leave the European Union.
After initial gains, Japan’s benchmark Nikkei 225 closed down 7.7% to 14,982.48 points, reports BBC.
The UK has voted by 52 per cent to 48 per cent to leave the European Union after 43 years in an historic referendum.
Analysts said investor sentiment has been rattled by the looming uncertainty on markets around the globe.
As the British pound, hits its lowest levels since 1985, the yen has surged to 101 to the US dollar as investors now see the Japanese currency as a safe haven. Tokyo has for years been trying to keep the yen low as any surge in the currency hurts the country’s exporters.
Japan’s currency woes
Bank of Japan governor Haruhiko Kuroda said the central bank stood ready to ensure market stability.
“The BOJ, in close cooperation with relevant domestic and foreign authorities, will continue to carefully monitor how the [EU referendum] would affect global financial markets,” Mr Kuroda said on Friday.
Takuji Okubo, chief economist with Japan Macro Advisors, told the BBC: “For Japan, a sharp yen appreciation is the most concerning outcome from Brexit.”
“A sharp yen appreciation poses a threat of a return to deflation, causing prices to drop, corporate profits to shrink and asset markets to fall,” Mr Okubo said.
“Japan cannot afford to sit back. With the BoJ nearly having exhausted its easing options, currency intervention is one of the only policy measures Japan can take to fight back the tide of deflation.”
Other markets in Asia
In South Korea, the Kospi index was 3.9 per cent lower at 1,909.18. The Korean won has dropped the most against the US dollar since October 2011.
Australia’s ASX/200 fell sharply by 3.4 per cent to 5,100.00 points.
In China, the mainland Shanghai Composite was down 1.2 per cent to 2,857.58 while Hong Kong’s Hang Seng is down sharply 4.7 per cent to 19,894.12 points.
Mumbai’s Sensex in India also fell by 3.4 per cent to 26,022.60 points.
“There has been a sharp knee-jerk reaction in markets, as hopes of Bremain had gained traction in the past week,” Shubhada Rao, analyst with Yes Bank in Mumbai told the BBC.
“In the near-term, equity and currency markets could test new lows, while continuing to closely watch developments in UK for the way ahead.”