Japanese stocks plunged Tuesday and other Asian markets declined following heavy Wall Street losses triggered by Trump's attack on the US central bank and political chaos in Washington.

A man walks past an electronic board showing Japan's Nikkei average and Dow Jones Industrial Average outside a brokerage in Tokyo, Japan, December 5, 2018.
A man walks past an electronic board showing Japan's Nikkei average and Dow Jones Industrial Average outside a brokerage in Tokyo, Japan, December 5, 2018. (Reuters Archive)

Tokyo's benchmark Nikkei 225 index plunged more than five percent in morning trade on Tuesday amid rising doubts about the US economy and fears sparked by a US government funding crisis.

At the midday break, the Nikkei index was down 5.05 percent or 1,018.74 points at 19,147.45, after dipping to as low as 19,138.88 - the lowest level since April 2017.

The broader Topix index dipped 4.99 percent or 74.27 points to 1,413.92 by the break.

Analysts had warned that the Japanese market would be volatile after steep falls on Wall Street on Monday, and with a higher yen against the dollar weighing on sentiment.

But Makoto Sengoku, market analyst at Tokai Tokyo Research Institute, admitted surprise at the scale of the rout.

"I didn't expect the market would tumble this much," he told AFP.

"There are no signs of selling running its course or big buyers emerging."

The dollar fetched 110.13 yen in midday Tokyo time, down from 110.43 yen in New York on Monday and 111.38 yen in Asian trade on Friday.

China sell-off continues

China stocks fell on Tuesday morning and the Shanghai index approached a four-year low, tracking a global sell-off as investors were rattled by Trump's attack on the US Federal Reserve and its chairman Jerome Powell, following mounting concern in Washington at the president's foreign and military policies.

The CSI300 index fell 2.3 percent, to 2,969.00 points at the end of the morning session, while the Shanghai Composite Index lost 2.4 percent to 2, 466.29 points, within sight of a four-year low hit mid-October.

However, China will not resort to "flood-like" stimulus in monetary policy next year, although it will consider more cuts as needed to reserves held at commercial banks, local media quoted a central bank adviser as saying in a report on Tuesday.

The yuan was quoted at 6.878 per U.S. dollar, 0.3 percent firmer than the previous close of 6.8984.

So far this year, the Shanghai stock index is down 23.59 percent, while China's H-share index is down 14.1 percent. Shanghai stocks have declined 2.36 percent this month.

Markets in Hong Kong, Australia and South Korea were closed for Christmas.

US markets stunned by Trump's comments, actions

In New York, US shares fell sharply on Monday with investors unnerved by weekend reports that US President Donald Trump had asked about the possibility of firing Powell.

The dive also came after Treasury Secretary Steven Mnuchin's efforts to reassure investors fell flat.

Mnuchin was widely panned by market watchers over a phone call on Sunday with the six biggest US banks, reporting on Twitter that the six CEOs have "ample liquidity" available.

US stocks plunged more than two percent while oil prices sank more than six percent in a holiday-shortened Monday trade, as developments in Washington added to investors' concern about a slowdown in the global economy next year.

"People are saying this is a black Christmas," said a veteran currency trader at a major Japanese bank.

Wall Street's volatility index, which measures implied volatility of stocks and is often seen as investors' fear gauge, jumped to 36.10, the highest since February 6, when it briefly shot up to as high as 50.30.

US President Donald Trump blasted the Federal Reserve on Monday, describing it as the "only problem" for the US economy, only days after reports surfaced that Trump was considering moving against his appointee, Powell, before belittling him on Twitter.

Legal experts are unclear whether the president has the power to remove Powell, but Trump's pronouncements have rattlers markets which crave stability.

"If talk of firing Powell becomes more realistic, that would undermine the Fed's independence as a central bank and ultimately confidence in the dollar," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank

As a sell-off in equities escalated, Mnuchin on Monday hosted a call with the president's Working Group on Financial Markets, a body known colloquially as the 'Plunge Protection team.'

But holding such a meeting, which is normally only convened during times of heavy market volatility, did little to soothe the market. Some said the move may have backfired by hurting investor sentiment.

Trump also sparred with top Democrats in Congress over the partial shutdown of the US government on Monday, with no sign of tangible efforts to reopen agencies.

Washington's latest problems come on the heel of a major sell-off in global shares since early October on worries about Sino-US tensions, higher US interest rates and a waning boost from Trump's tax cuts to the US economy.

Source: AFP