The Dow Jones Industrial Average lost more than 800 points, its biggest decline since Brexit (SPENCER PLATT)

Tokyo (AFP) – Japanese stocks plunged by more than three percent Thursday following the worst session on Wall Street for months, as US President Donald Trump said the Federal Reserve had “gone crazy” with plans for higher interest rates.

The benchmark Nikkei 225 dropped nearly two percent at the open and extended losses to below the three-percent mark, as traders fretted about surging interest rates and an ongoing trade spat.

Currency investors took shelter in the safe-haven yen, resulting in steep losses for Japanese exporters, with electronics giant Sony down nearly five percent as blue-chip firms flashed red across the trading board.

“The markets are fraught with peril,” warned Stephen Innes, head of trading at OANDA, adding there was a “horrible intersection of risk aversion” from the US-China trade conflict and rising US interest rates.

The steep drop in Japan followed a decline on Wall Street of nearly 830 points, the biggest fall since February, amid Trump’s latest criticism of the Federal Reserve, the US central bank.

“I think the Fed is making a mistake. It’s so tight. I think the Fed has gone crazy,” Trump told reporters as he arrived for a campaign rally ahead of the US mid-term elections.

He has frequently criticised the US central bank for gradually raising interest rates, and on Wednesday reiterated his position: “I really disagree with what the Fed is doing.”

Trump has repeatedly touted Wall Street records as proof of the success of his economic programme, including his confrontational trade strategy.

But he downplayed the first major drop in months, saying, “it’s a correction that we’ve been waiting for a long time.” 

– ‘Exposure’ –

The rout in US shares followed substantial losses on European bourses, due in part to tensions between Brussels and Rome over Italian budget plans that have revived fears about the eurozone.

Bourses in Paris and Frankfurt both lost more than two percent, while London fell 1.3 percent.

“The selling is not panicking but it’s persistent,” Briefing.com analyst Patrick O’Hare said of the proceedings. “It’s all about investors rethinking their exposure to stocks.”

Many of the biggest US names fell hard in Wednesday’s session, with Apple, Boeing and Facebook all slumping more than four percent and Amazon, Nike and Microsoft shedding more than five percent.

Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve interest rate increases.

Last week’s jump in yields followed strong US data but many analysts have been anticipating dynamics in the bond market to change due to expectations that central banks in Europe and Japan will soon phase out bond-buying programmes.

“It’s shifting the tectonic plates,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors.

The turmoil on stock markets came a day after the International Monetary Fund slashed its global growth forecast on worries about trade wars and weakness in emerging markets.

In other markets, oil prices fell sharply on worries that Hurricane Michael will dent demand for gasoline and other petroleum products.

– Key figures around 0100 GMT –

New York – Dow Jones: DOWN 3.2 percent at 25,598.74 (close)

New York – S&P 500: DOWN 3.3 percent at 2,785.68 (close)

New York – Nasdaq: DOWN 4.1 percent at 7,422.05 (close)

London – FTSE 100: DOWN 1.3 percent at 7,145.74 (close)

Paris – CAC 40: DOWN 2.1 percent at 5,206.22 (close)

Frankfurt – DAX 30: DOWN 2.2 percent at 11,712.50 (close)

EURO STOXX 50: DOWN 1.7 percent at 3,266.90 (close)

Tokyo – Nikkei 225: DOWN 1.9 percent at 23,049.01 (circa 0100 GMT)

Euro/dollar: UP at $1.1537 from $1.1523 

Pound/dollar: DOWN at $1.3211 from $1.3190

Dollar/yen: DOWN at 112.29 from 112.35 yen

Oil – Brent Crude: DOWN 60 cents at $82.49 per barrel 

Oil – West Texas Intermediate: DOWN 57 cents at $72.60 per barrel

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