Japan Stocks Fall as Investors Count Down to U.S. Rate Increase

  • Topix drops for second day to lowest close in two months
  • Odds for first Fed rate rise in a decade remain above 75%

Japanese stocks fell for a second day, with the Topix index posting its lowest close in about two months, as investors count down to the first U.S. interest-rate increase in almost a decade. Exporters and banks were the biggest drags.

The Topix slipped 1.7 percent to 1,502.55 at the close of trading in Tokyo, adding to Monday’s 1.4 percent drop and posting its lowest close since Oct. 20. The Nikkei 225 Stock Average slipped 1.7 percent to 18,565.90. The yen rose 0.2 percent to 120.84 per dollar.

“Investors are focusing on the Fed,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, said by phone. “They want to see what the Fed will announce on the target interest rate at the end of 2016. There’s market consensus that rates will rise this week, but it is unclear what happens after that.”

Topix intraday market map
Topix intraday market map

Megabanks Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. were among the biggest contributors to losses on the Topix, falling at least 2.1 percent. Toyota Motor Corp. was the heaviest drag, sinking 1.9 percent. Chemical maker Asahi Kasei Corp., Nisshin Steel Co. and TDK Corp. all slumped more than 3.9 percent to lead declines on the Nikkei 225. Seibu Holdings Inc. added 2 percent after Barclays Plc raised its rating on the department-store operator.

E-mini futures on the Standard & Poor’s 500 Index added 0.1 percent after the underlying measure rose 0.5 percent on Monday, surging in the final minutes of trading as a rebound in U.S. crude oil to back above $36 a barrel overshadowed credit-market turbulence and weakness in commodity shares before the Federal Reserve prepares to raise interest rates on Wednesday.

Traders are pricing in 76 percent odds that the Fed will raise rates for the first time since 2006, ending a seven-year era of near-zero borrowing costs. Tightening policy would solidify the Fed’s divergence from other major central banks, with policy makers in Europe and Japan still emphasizing measures to support growth. 

Bank of Japan data showed that its purchases of the country’s exchange traded funds have already exceeded its 3 trillion yen target for 2015. The central bank bought 36.9 billion yen of ETFs on Monday, boosting purchases this year to 3.03 trillion yen.

Bond market anxiety also has caught the attention of equity investors after Third Avenue Management froze redemptions at a high-yield mutual fund last week. Prices on U.S. high-yield bonds kept sinking Monday as London-based Lucidus Capital Partners became the latest fund to liquidate holdings as investors demanded their money back.

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