Japanese equities slid the most since October 4, with both benchmarks declining more than 2% as growing speculation the Bank of Japan will raise interest rates lifted the yen and hurt exporters.
The Topix closed 2.2% lower at 2,666.83 in Tokyo, with 31 of 33 sub-sectors dropping. The exporter-heavy Nikkei 225 declined 2.2% to 38,820.49, leading losses in Asia. Tech shares slumped, following US peers lower, as investors took profit from some of the top performers over the past year.
Expectations the BOJ will tweak policy at the March 18-19 meeting were further fueled by reports that the bank is considering scrapping its yield curve control program, and that a rising number of policymakers are leaning toward ending negative rates due to expected larger wage increases this year. Data Monday showing the economy avoided falling into a recession at the end of last year also bolstered the case for the BOJ to raise rates for the first time since 2007.
“Today’s sell-off reflects the realization that after many false dawns, the Bank of Japan’s exit from the Negative Interest Rate Policy is now likely just over one week away,” said Tony Sycamore, a market analyst at IG Australia Pty Ltd. “This means that investment decisions made over many years are hastily being re-evaluated to reflect a reality many were thinking was still months away.”
The yen edged higher to 146.98 per dollar Monday, after four days of gains. The Nikkei recently hit the key 40,000 level for the first time after reclaiming its 1989 peak earlier this year. Foreign investors had been buying into Japan’s biggest companies on improving shareholder returns and the weak yen.
The yen looks poised to test the 145 level per dollar level and a break of that may prompt a quick move toward 140, said Amir Anvarzadeh, a strategist at Asymmetric Advisors Pte Ltd. “The market’s reaction to this seems to suggest that a lot has been riding on weak yen to continue to support multinationals rather than bets on changing corporate governance etc. which has been the trigger behind the more positive Japan narrative.”
Automobile companies such as Toyota Motor Corp. contributed the most to the Topix’s decline, decreasing 3.1%. Out of 2,150 stocks in the index, 302 rose and 1,807 fell, while 41 were unchanged.
Semiconductor companies including Renesas Electronics Corp. dropped after Nvidia Corp. and other US tech stocks fell amid profit-taking. The Philadelphia Semiconductor index tumbled 4% on Friday.
Investors will be on the watch for whether the BOJ will buy exchange-traded funds after the Topix fell more than 2%. The last time the central bank purchased ETFs was in October of last year when the index dropped by a similar amount in the morning trading session. That follows an unwritten rule that only a drop of at least 2% in the benchmark gauge in the morning triggers BOJ buying of the funds.
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