Surging Yen Sinks Japanese Stocks, Nikkei Plummets 5.4%

The yen strengthened further against a basket of the world's major currencies, as yen carry traders continue to rush to the exits with concerns over credit market liquidity spreading globally. The Nikkei 225 dropped 5.4%, the most in seven years, due to the stronger yen and renewed worries about the U.S. economy. Deutsche Bank told clients the performance in Japan was "dire," since Japanese equities have been lagging regional and global indices and failed to rally despite the late Thursday recovery in the U.S. DB expects more yen strength. UBS said its Risk Index reached a record high of 3.07, exceeding readings after 9-11 and the collapse of Long-Term Capital Management. Volatility of dollar-yen options reached 23.5%, the highest level since January 1999. The regional strategy head at Daiwa Institute of Research in Hong Kong commented, "Nobody expected such a fast appreciation," which "caused a huge sell-off in export related stocks such as autos and high-techs." Shares of Canon dropped 8.6%, Honda fell 8.2%, Toyota lost 7.2% and Sony declined 6.8%.

Sources: Bloomberg, MarketWatch
Commentary: Citigroup: Asian Markets Not Less Vulnerable To Global Credit Crunch Than In 1998 • Heavy Selling Spreads Across Asia; Yen Carry Trade Unwinds • Japan: Q2 GDP Slows; BOJ Rate Hike Less Likely
Stocks/ETFs to watch: TM, HMC, CAJ, SNE, MTU, MFG. ETFs: EWJ, FXY

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.