Japan’s Topix index trimmed declines at the close before a briefing on changes to the Government Pension Investment Fund’s assets. Nikkei 225 Stock Average futures fell after an announcement the fund would increase its holdings of Japanese stocks by 1 percent.
The Topix dropped 1.3 percent to 1,056.95 at the close of trading in Tokyo, after earlier falling 3.5 percent as the yen surged against the dollar. The Nikkei 225 lost 0.2 percent to 12,877.53, after declining as much as 2.8 percent. The gauge’s futures sank 1.1 percent to 12,680 in Osaka and lost 1.5 percent in Singapore.
GPIF, the world’s biggest manager of retirement savings, will raise its weighting of Japanese equities to 12 percent from 11 percent, while cutting holdings of domestic bonds to 60 percent from 67 percent, according to a statement by the Ministry of Health, Labor and Welfare after the stock market closed. GPIF oversaw about 112 trillion yen ($1.16 trillion) in assets as of the end of December.
“It was expected that they would be careful with changing their allocation to Japanese stocks,” said Masaru Hamasaki, a strategist at Tokyo-based Sumitomo Mitsui Asset Management Co., which oversees the equivalent of $100 billion. “They’re probably looking at how far stocks have come and their outlook for growth, and I can’t imagine they’re that bullish.”
Steel producers and rubber-product makers fell the most among the Topix’s 33 industry groups. Carmakers and consumer electronics companies were the biggest drags. A gauge tracking real estate shares, which retreated 26 percent from its April 12 high through yesterday, advanced 3.9 percent. Tokyo Electric Power Co. gained the most on the Nikkei 225 after falling 23 percent in the past two days.
Shares earlier tumbled after the yen rose by the most in three years against the dollar yesterday. The Japanese currency extended its gain after Finance Minister Taro Aso said he had no immediate intention to weaken the currency.
Futures on the Standard & Poor’s 500 Index slipped 0.1 percent. The gauge yesterday gained 0.9 percent in New York. A Labor Department report today is expected to indicate employers added 163,000 to non-farm payrolls last month, almost equal to the gain in April. Federal Reserve Chairman Ben S. Bernanke in May suggested the central bank could curtail its bond-buying if the job market improves in a “real and sustainable way.”
“There’s concern about the stability of capital from the U.S. Fed should they taper off monetary easing, and seeing as we had such a noticeable weaker-yen, rising-stocks story here, investors are taking profit,” said Juichi Wako, a Tokyo-based strategist at Nomura Securities Co., Japan’s biggest brokerage. “The market has fallen to a level where it would make sense to buy back shares, but the market sentiment isn’t there yet.”
Futures on the Nikkei 225 traded in Osaka and Singapore fell after the health ministry said the GPIF will increase its weighting of Japanese stocks by only 1 percentage point. Japanese bond holdings will be cut to 60 percent from 67 percent, foreign stocks raised to 12 percent from 9 percent, and foreign bonds boosted to 11 percent from 8 percent.
The fund’s president, Takahiro Mitani, said in February that the allocation to Japanese government bonds was too great should interest rates rise as economic growth spurs inflation.
After rallying about 50 percent this year through their high on May 22, Japan’s main equity gauges plunged and entered corrections on May 30. As of today, the Topix has fallen about 17 percent from its recent peak.
Even after the correction, the measures have climbed nearly 24 percent this year to make the country the world’s best-performing major market, on optimism Prime Minister Shinzo Abe and the Bank of Japan can lift the country out of 15 years of deflation.
The Tokyo Stock Exchange Mothers Index of smaller companies, which surged 160 percent this year through its May 14 high, sank 11 percent, after plunging 13 percent yesterday.
Stock prices are swinging the most in more than two years, with a measure of 50-day historic volatility on the Topix jumping to 33.23 today, the highest since after the March 2011 earthquake and nuclear accident. Japan’s broadest equity measure has swung an average of about 3.8 percent daily since May 23, when it had the biggest one-day plunge since the disaster.
The Topix fell more than the Nikkei 225, as Fast Retailing Co., which accounts for about 10 percent of the smaller, price-weighted gauge, advanced 5.6 percent as the biggest support on the measure.
“There is now a more sobering assessment of Japan and what it’s likely to accomplish,” Larry Hatheway, chief economist at UBS AG, said in a Bloomberg TV interview from Singapore. “For the immediate short term we have to remain cautious. There’s a new-found source of volatility in the markets.”