London, May 23 : - Financial markets around the world were roiled Thursday after Japanese stocks suffered their biggest slide since the country was hit by a devastating tsunami more than two years ago.
Several reasons have been blamed for the 7.3 percent fall in the Nikkei index to 14,483.98, including a spike in Japanese government bond yields and unexpectedly weak Chinese manufacturing figures.
Mixed messages from the U.S. Federal Reserve about when it may start withdrawing some of its monetary stimulus have also contributed to Thursday's retreat.
While Wednesday's written testimony to lawmakers in Congress from Fed chairman Ben Bernanke appeared to signal that the central bank was not yet ready to change its super-easy monetary policy, subsequent comments—and the minutes of the last rate-setting meeting—triggered speculation that the pace of asset purchases could slow down.
Much of the recovery in global stock markets over the past few years has had its roots on the extra liquidity that's flown through financial markets as a number of central banks, particularly the Fed, have pursued stimulus programs. The withdrawal of this new liquidity has, for some time, been viewed as the greatest threat to stocks in particular.
“The mood has switched from greedy to fearful,” said Chris Beauchamp, market analyst at IG.
In Europe, the FTSE 100 index of leading British shares, which was only around 75 points off its highest-ever close on Wednesday, was down 1.9 percent at 6,710.
Germany's DAX, which has hit a series of all-time highs recently, tumbled 2.6 percent to 8,306 while the CAC-40 in France was 2.3 percent lower at 3,956.
U.S. stocks, which fell sharply Wednesday, were poised for more declines at the open. Dow futures were 0.9 percent lower while the broader S&P 500 futures fell 1.2 percent.
Those declines though are dwarfed by the scale of the reverse in Japan's Nikkei, the biggest since March 2011. Some sort of decline in global indexes, especially in the Nikkei, had been anticipated following a run that's seen many post historic highs.
The Nikkei has been the best-performing major index this year, having risen around 45 percent—before Thursday's loss—to five-year highs.
The index has been buoyed by the announcement of an aggressive monetary stimulus from the Bank of Japan, which has piled the pressure on the yen. That development is a potential boon to the country's exporters and therefore to growth—a favorable backdrop for stock investors.
Many in the markets blamed the Nikkei's fall on the spike in the interest rate charged on country's benchmark 10-year bond to above 1 percent for the first time in a year.
That unnerved investors at a time when Japan's already overburdened government finances are vulnerable to rises in interest rates.
The interest rate, or yield, later slipped back to about 0.9 percent.