The Nikkei index has slumped in early trade after Japanese markets opened at 11:00am AEDT.
The declines follow a drop of 8% in Nikkei futures this morning, after US stocks had their largest one-day points fall in history.
Stocks in Australia and South Korea are sharply lower and a short time ago, the Nikkei 225 index was down more than 4.5% — decline of over 1,000 points:
It marks a sharp correction for Japanese stocks, just a few days after trading at near all-time highs.
The Nikkei has dipped by more than 10% from its recent high of 24,124 points reached on January 23 — indicating the market is now in a technical correction.
Chris Weston, chief strategist at IG Markets, said it’s “not looking good”, with the selloff in global stocks stemming from a rise in volatility.
“The trade of the year in 2017 among institutional investors was selling the VIX – a measure of volatility — and that formed the basis for big investment flows,” Weston said.
The Cboe Volatility Index consistently traded near record lows in 2017 at a reading of around 10, but spiked overnight to a reading of 37.
“Now volatility has risen, big institutional players have been forced to reverse their position which has acted to exacerbate the selling.”
From a technical standpoint, AxiTraders’s Greg McKenna said the Nikkei has now broken through key support levels.
“With today’s fall the Nikkei has broken down and through the bottom of the range it was in since November,” McKenna said.
“That is an ugly sign technically and a test of the 200 day moving average down around the 21,000 level seems to me to be a reasonable chance.”
And McKenna said it’s unlikely to get any better later on today.
“The key here though is what happens when Europe comes in this afternoon. They are likely to hit the sell button too. That’s because they are playing catch up to the last 2 hours fall in US markets which happened when they were well and truly closed,” he said.
Weston said: “What we’re seeing today is that the sellers are holding sway — some players are entering the market to counter those positions but they’re getting knocked off one by one.”
On a broader macroeconomic level, he said the latest moves in stocks indicate that markets finally believe inflation is here.
“This move started in the bond market and has extended to volatility-based positions. To me, the move higher in US 30-year bond yields on Friday night indicated that markets really do believe inflation is on the way.”
“In that sense, good economic news can also be bad news now. Because as the economy continues to strengthen, it adds pressure to inflationary forces and by extension moves in interest rates.”
Join the conversation about this story »
NOW WATCH: Microsoft President Brad Smith says the US shouldn't get 'too isolationist'