Japan-China tensions trigger Nikkei 225 sell-off as tourism stocks plunge

Stocks

Summary:

Japan–China tensions sparked a sharp Nikkei sell-off, hammering tourism and retail stocks as the yen weakened. With Japan’s economy already fragile, prolonged strains risk hitting tourism, trade flows and market stability.

What happened

Diplomatic tensions escalated after Prime Minister Sanae Takaichi stated in parliament on 7 November that a Chinese military action against Taiwan could constitute an existential threat to Japan, potentially warranting a military response from Tokyo. Beijing responded over the weekend by issuing a travel advisory and expressing concerns regarding the safety of Chinese nationals in Japan.

The Chinese Foreign Ministry asserted that recent statements on Taiwan had undermined the foundation of bilateral relations and called upon Takaichi to retract her remarks. On Monday, Takaichi characterised her comments as 'hypothetical' and pledged to refrain from making similar statements in parliamentary proceedings.

Nikkei plunges below 50,000 and yen weakens

Heightened diplomatic tensions with China triggered significant investor concern, with travel and retail-oriented equities experiencing substantial sell-offs following Beijing's advisory to Chinese citizens against visiting Japan. Beauty and personal care company Shiseido witnessed its shares decline by 12%, while department store operator Isetan Mitsukoshi fell over 11%, and Ryohin Keikaku, parent company of Muji, shed more than 9% of its market value.

Combined with concerns regarding elevated valuations in US technology equities, the Nikkei 225 declined 3% across the first two trading sessions this week, falling beneath the 50,000 threshold. The yen simultaneously weakened, breaching 155 against the dollar.

Market vulnerability and economic backdrop

Recent developments reinforce external perceptions of Takaichi's hardline conservative positioning, which has clearly unsettled Beijing. While the market reaction appears pronounced, the underlying concerns are legitimate.

The timing proves particularly inopportune given Japan's fragile economic landscape. Japan's third-quarter gross domestic product (GDP) contracted by 1.8% on an annualised basis, marking the first contraction in six quarters. The deceleration stemmed from a sharper decline in net exports and softened private consumption. Households continue to grapple with rising costs amid anaemic real wage growth, while the broader economy confronts external headwinds including US tariffs. Domestic consumption has failed to generate meaningful momentum in retail sales, rendering tourism revenues increasingly critical to economic growth.

Tourism impact

Visitors from mainland China, Hong Kong and Macau represent approximately 27% of all foreign arrivals to Japan in 2024, totalling close to 9.8 million visitors. Should tensions persist, tangible impacts on retail and tourism-related equities could materialise. That said, visitors from other regions may partially offset this demand contraction. Notably, Japan's recent decision to triple the tourism tax to ¥3000 suggests authorities believe current visitor volumes exceed optimal levels, indicating some buffer capacity exists.

It is worth noting that certain equities most severely affected in this episode, such as Shiseido, were already contending with separate operational challenges—the geopolitical tensions merely amplified pre-existing vulnerabilities.

Trade implications

Should tensions intensify further, disruptions could extend into the trade relationship, which remains asymmetric yet mutually significant. Japan maintains a ¥6.4 trillion trade deficit with China in 2024 and depends heavily on Chinese imports for consumer electronics, household appliances and critical rare-earth metals—inputs essential for Japanese manufacturers to sustain export competitiveness. Conversely, Japan dominates the global supply of semiconductor manufacturing equipment and precision machinery crucial to China's technology sector and industrial ambitions. Any sustained trade disruption would prove detrimental to both economies.

Technical analysis

Nikkei 225

The Japan 225 index has declined approximately 8% from its early November peak, but given it continues trading above the 200-day moving average (MA), the medium-term ascending trend remains intact. The trend line originating from early April is likely to provide support around 48,000. The Bollinger Bands also indicate an oversold condition, which could potentially drive a technical rebound towards immediate resistance around 51,500. However, should the index breach below 48,000, the next material support lies near 45,000.

Figure 1: Japan 225 daily price chart

as of 19 November 2025. Past performance is not a reliable indicator of future performance.

USD/JPY

USD/JPY has gained momentum following the breakout in early October after Takaichi's election as president of the Liberal Democratic Party. The pair currently trades at the resistance range of 154.8-156. Should the US dollar strengthen further beyond this resistance range, January's high at 158.9 will come into focus. Conversely, a rejection below 156 would likely suggest consolidation within the 153-155 range, with 151.6 acting as key support.

Figure 2: USD/JPY daily price chart

as of 19 November 2025. Past performance is not a reliable indicator of future performance.

Source: ig

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Glendon

Forex

Economic

The U.S. trade deficit narrowed more than expected in August as imports declined, but trade could still subtract from economic growth in the third quarter.

The trade gap contracted 23.8% to $59.6 billion, the Commerce Department's Bureau of Economic Analysis and Census Bureau said on Wednesday. Economists polled by Reuters had forecast the trade deficit would ease to $61.0 billion.

Imports decreased 5.1% to $340.4 billion, while exports edged up 0.1% to $280.8 billion.

The report, which was initially scheduled for release on October 7, was delayed because of the recently ended 43-day shutdown of the government.

President Donald Trump's protectionist trade policy, marked by sweeping tariffs, has caused big swings in imports and the trade deficit, distorting the overall economic picture.

The U.S. Supreme Court early this month heard arguments on the legality of Trump's import duties, with justices raising doubts about his authority to impose tariffs under the 1977 International Emergency Economic Powers Act.

Trade sliced off a record 4.68 percentage points from gross domestic product in the first quarter before adding all that back to GDP in the April-June quarter. Estimates for third-quarter GDP growth are well above a 3.0% annualized rate.

The third-quarter GDP report was due in late October but delayed by the government shutdown. The economy grew at a 3.8% pace in the second quarter, with a smaller trade deficit being the key driver.

Source: Reuters

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Winkelmann

Political

Economic

Vietnam police issued an arrest warrant for a well-known lawyer and activist based in Germany for alleged anti-state activities, the second government critic in that country to be targeted this week on the same charges.

Nguyen Van Dai is accused of "producing, storing, distributing or disseminating information, documents or materials aimed at opposing the Socialist Republic of Vietnam," according to a statement on the public security ministry's website. He is a Vietnamese citizen, police said.

"Every time you accuse me from afar like this, tens of thousands of curious Vietnamese people" search his name, Dai said in a message to police posted on social media. "You are doing free media for me more effectively than international agencies."

The 56-year-old said he's been a political refugee since 2018 and protected by the German government under the 1951 Geneva convention.

The German embassy in Hanoi didn't immediately respond to a request for comment.

The same charges were leveled earlier this week against Berlin-based journalist Le Trung Khoa, the editor of Thoibao.de, a Vietnamese-language news site for the diaspora. Police launched a criminal investigation into Khoa on Monday, who in turn criticized Vietnam's lack of freedom of expression and of the press.

Dai was previously sentenced to 15 years in jail and five years of house arrest in Vietnam after being convicted of trying to overthrow the government in April 2018. He was released later that year and flew to Germany with his wife as well as colleague Le Thu Ha, who had been sentenced to nine years in prison.

Dai and Ha were both members of the Brotherhood for Democracy, which was formed in 2013 to provide human rights training and legal assistance to Vietnamese.

Vietnam's government has "intensified its crackdown on dissent to punish people simply for raising concerns or complaints about government policies or local officials," Human Rights Watch said in an April 21 report.

There are more than 160 political and religious prisoners in Vietnam, including bloggers, labor union and democracy advocates, the rights agency said earlier this month.

Source: Bloomberg Europe

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Adam

Commodity

Robust physical demand for platinum and silver has highlighted the fragility of global supply chains. While the gold market has not seen the same kind of disruption, it may not be immune to similar volatility, according to one investment bank.

In their latest report, commodity analysts at Société Générale said they are closely watching official-sector gold demand, as they believe ongoing central bank purchases could lead to another short squeeze similar to what was seen in silver and platinum.

Global central banks have increased their gold reserves by roughly 1,000 tonnes in each of the last three years. Although demand is expected to be slightly weaker this year, the World Gold Council forecasts that holdings could still rise by as much as 950 tonnes, well above long-term averages.

Société Générale is issuing early warning signals that this demand for physical metal could put additional stress on a market dominated by paper holdings. The analysts said that even a 1% shift in reserve assets would spark a “gold frenzy.”

They added that China will continue to dominate the gold market.

“If instead of our previous assumption of central banks selling US assets and diverting a small proportion into gold, we could, alternatively, assume that central banks reallocate an additional 1% of their total reserves into gold and do not sell foreign assets,” they said. “China alone would require 276t alone but if we sum across all countries represented, we arrive at a very significant 762t of total flows. If we take that 762t and spread it over a three-year horizon, this will equate to 64t a quarter, almost the same level as under the assumption that foreign holders reduce their exposure to US assets, that is central to our gold forecasting model.”

SocGen’s latest comments come as official-sector gold demand continues to attract significant market attention. Analysts note that global central bank gold purchases have helped create substantial value in the gold market, establishing new support levels at each major breakout.

Analysts expect that growing economic and geopolitical uncertainty will continue to prompt central banks to diversify their holdings into gold. At the same time, America’s ongoing trade war has pushed many nations to reduce their reliance on the U.S. dollar and move into an asset with no third-party or geopolitical risk.

Although central bank demand remains robust, the World Gold Council notes that 66% of official purchases in the third quarter have gone unreported. Because central bank demand is often opaque, analysts must estimate buying using a range of data sources.

SocGen is monitoring central bank demand through U.K. trade data.

“Data released on 13 November, which includes September activity, pointed to an increase in export activity of 55.4 tonnes, which is 15 tonnes below the same month in 2023 and 70 tonnes below the seasonal norm. As prices declined in the latter half of October, this provided a better entry point for central bank buying, so we would expect export activity to have picked up (and a reduction in LBMA tonnage) last month. Seasonally, on average, there are 140 tonnes of exports out of the UK to all destinations in the month of October. We will have to wait until 12 December to see that data,” the analysts said.

SocGen has also seen a slight slowdown in U.K. gold exports to China.

“Total UK gold export data includes exports to China, and the HMRC dataset reports 15t of gold exports to China in September, up from 10t in August. However, September has seen an average of 47t of exports out of the UK into China (2022–2024). September’s export number is the lowest level going back to 2022. Seasonally, we would expect exports to reach 60t in October,” the analysts said.

While China imported 10 tonnes of gold from the U.K. in September, it reported only a 1-tonne increase in its official reserves.

According to the Financial Times, SocGen estimates—based on trade data—that China’s total purchases could reach as much as 250 tonnes this year, or more than one-third of total global central bank demand.

Source: kitco

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Michelle

Commodity

Economic

Russia expects to reach its OPEC+ oil production quota by the end of 2025 or early 2026, according to Deputy Prime Minister Alexander Novak.

"I think this (will happen) in the next few months, maybe by the end of the year or early next year. We'll see how companies do," Novak told reporters on Wednesday when asked about the timeline for meeting the quota.

Russia's current quota for November stands at approximately 9.5 million barrels per day.

Novak indicated that Russia is steadily increasing oil production in November, with the growth rate slightly exceeding that of October. Last month, the country fell short of its quota by 70,000 barrels per day.

The Russian government has maintained its forecast for liquid hydrocarbon production at 510 million tons for the current year, according to Novak.

He also stated that U.S. sanctions imposed in October against Russian oil giants Rosneft and Lukoil have not affected oil production in Russia. These sanctions were implemented in response to stalled peace talks regarding Ukraine.

Novak confirmed that Russia has fully completed compensating for its previous oil overproduction under the OPEC+ agreement and does not plan to voluntarily reduce output.

Source: Yahoo Finance

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Adam

Cryptocurrency

The asset once expected to “go to the moon” is struggling to keep pace with Treasuries. Bitcoin (BTC-USD) has fallen nearly 30% from its 2025 peak, lagging behind everything from tech stocks to T-bills.

Once promoted as a high-growth play, an inflation hedge, and a portfolio diversifier, the world’s largest cryptocurrency now faces the prospect of ending the year in the red — without fulfilling any of those roles.

Gold — often dismissed by Bitcoin believers as outdated — is easily outperforming the token, which the crypto faithful have dubbed digital gold. So are long-term bonds and the Nasdaq, in a year defined by falling interest rates and shrinking risk appetite.

The underperformance is even starker against benchmarks Bitcoin was supposed to outclass. The MSCI Emerging Markets Index is up sharply this year, and even the US Utilities Index — a byword for low-volatility, low-growth stability — has outpaced Bitcoin’s slide.

Great Bitcoin Crash of 2025 Has It Lagging Bonds, Gold_1

On Tuesday, Bitcoin briefly dipped below $90,000 — roughly the average entry price of all ETF inflows since their launch — meaning the typical ETF investor was, for a while at least, underwater. The largest cryptocurrency climbed off the seven-month low to trade about 1.5% higher to $93,241 as of 11:46 a.m. in New York.

For many, this was supposed to be crypto’s breakout year. A pro-crypto White House, new rules allowing launch of exchange-traded funds across tokens, and a wave of institutional inflows had seemingly secured digital assets a place in mainstream finance. Instead, for investors who bought near the highs, Bitcoin’s 2025 story feels familiar: a burst of euphoria, a crash, and growing disbelief.

Once pitched as everything from an inflation hedge to a growth engine and an uncorrelated store of value, the token has fallen short on every count of late. Volatile? Always. Reliable? Less and less.

That matters for professional investors. In diversified portfolios, Bitcoin has failed to offset losses from tariff-driven selloffs or amplify gains during rebounds. Nor has it acted independently when other markets turned volatile. For fund managers who saw crypto as a strategic addition, the disappointment goes beyond performance — it cuts to purpose.

Great Bitcoin Crash of 2025 Has It Lagging Bonds, Gold_2

Theories about what went wrong vary. Some blame October’s violent crash, which erased roughly $19 billion in leveraged positions and left deep psychological scars across the market. “10th October is definitely a longer lasting shock to the market than it appears on the surface,” said George Mandres, senior trader at XBTO Trading. “As much as market participants will try to forget or brush it off, it will remain deeply embedded in the appetite of market-makers to provide liquidity and in market participants’ conviction and risk appetite.”

Others point to broader market weakness. “Asia printed softer growth data overnight, Chinese equities weakened, and global tech valuations retreated as investors reassessed pricing ahead of Nvidia’s earnings on November 19,” said Timothy Misir, head of research at digital asset analytics firm BRN. “With liquidity conditions already thin, correlations snapped back to their high-beta defaults. Crypto traded not as a hedge, but as the most leveraged expression of macro tightening.”

Great Bitcoin Crash of 2025 Has It Lagging Bonds, Gold_3

“Talks of an incoming bear market are starting to ring louder and louder,” said Augustine Fan, a partner at SignalPlus.

To be sure, Bitcoin still trades well above levels seen before Donald Trump’s re-election, and its history is filled with sharp declines followed by spectacular recoveries. Over longer horizons, returns remain impressive. But for now, traders are positioned defensively. Demand for downside protection around the $85,000 and $80,000 levels has surged, and options data suggest less than a 5% chance of Bitcoin revisiting its record high above $126,000 by year-end, according to data from Coinbase-owned Deribit.

Source: Bloomberg

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Warren Takunda

Economic

The pound to euro exchange rate (GBP/EUR) is back under pressure in midweek trade, with analysts pointing to soft inflation data for the move.

The pair trades 0.20% lower on the day at 1.1326, having been as high as 1.1369 on Monday, suggesting a relief-style rebound having run out of impetus.

A catalyst for the midweek weakness is a slowdown in domestic inflation, with the ONS reporting

prices rose 3.6% y/y in October, down from 3.8% in September. Softening in core inflation (where monthly prices rose at 0.3% m/m vs. 0.4% expected) adds to the sense inflation is coming off recent highs.

And that means one thing: the Bank of England can safely lower interest rates further without those cuts stoking inflation.

And a lower Bank Rate translates into lower short-term bond yields, which mechanically weighs on the pound. Pound to Euro Rate Back Under Pressure_1

Pound to Euro Rate Back Under Pressure_1

Above: GBP/EUR is trending in a downside channel.

The government and Bank of England will be happy about the direction of travel:

"Momentum in core inflation is close to pre-2022 averages. At 2.7% 3m/3m-annualised SA in October, this has been on a downward trend for five months, from a local peak of 4.2% in May," points out Jack Meaning, an economist at Barclays.

"Overall, today's data leaves our view of the likelihood of a Bank of England cut in December little changed," he adds.

Looking to next year, further rate reductions become possible as inflation should continue to ease, say economists.

A further softening in rate cut expectations should, on balance, keep pound-euro under pressure.

"Looking ahead, inflation is likely to remain at similar levels over the final months of this year, but several factors should pull the headline rate down through next year,” says Edward Allenby, Senior Economist at Oxford Economics.

Pound to Euro Rate Back Under Pressure_2

Above image courtesy of Berenberg.

The government can do something to help. There's talk about lowering energy bills through VAT cuts and green levy reductions.

Some economists suggest this could knock half a per cent off headline inflation next year.

Stinging tax hikes are meanwhile set to be announced next week, which should squeeze some excess out of the economy and also contribute to lower trends.

The stronger pound relative to the dollar is also helping, says Allenby:

"The energy category starts to drag on inflation in H1 2026. We think food price inflation has probably passed its peak, with the impact of weaker food commodity prices and stronger sterling set to weigh on the category next year."

Meanwhile, services inflation, the most stubborn component of the inflation basket, is expected to ease steadily due to cooling pay growth and strong base effects caused by this year's increase in national insurance contributions.

The market currently sees a rate cut in December and another cut in the first half of next year, taking the terminal rate to 3.5%.

However, quicker progress on inflation can lower the floor, keeping pound exchange rates under pressure.