- Volumes on indexes jump by more than 90% on 30-day average
- Confusion reigns among investors after surprise rate action
Japanese stocks jumped, plunged and then soared again as investors struggled to decipher the central bank’s surprise move to adopt a negative interest rate.
The Topix rose 2.9 percent to close at 1,432.07 in Tokyo, gyrating between gains of more than 3 percent and a loss of 1.6 percent in the half hour after the Bank of Japan announcement. The Nikkei 225 Stock Average gained 2.8 percent to 17,518.30 after similar swings. Governor Haruhiko Kuroda’s board voted 5-4 to adopt an interest rate of minus 0.1 percent on a portion of current accounts held by financial institutions at the central bank. The yen weakened 1.4 percent to 120.48 per dollar.
“It’s no use expecting anything more from the Bank of Japan -- this time they’re pointlessly confusing the market,” Norihiro Fujito, general manager of Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, said by phone. “In the end, it’s symbolic of the limits of the BOJ’s policies.”
The Topix pared its monthly loss to 7.5 percent after falling into a bear market last week. Before Friday’s gains, it was on course for the biggest monthly slump since May 2012. Volumes on the Topix and Nikkei 225 on Friday were more than 90 percent above the 30-day average.
Only six of 42 economists surveyed by Bloomberg predicted the BOJ would expand already-record stimulus. Just one forecast a reduction in the interest rate, though none saw the move to a negative rate coming. The change takes effect on Feb. 16, the central bank said Friday at the conclusion of a two-day policy meeting.
Turmoil in global financial markets and the yen’s recent strength put pressure on the BOJ to adjust policy to drive price increases and growth in Japan. Data Friday showed the inflation rate remained at 0.1 percent in December, the jobless rate held at 3.3 percent and industrial production fell 1.6 percent from a year earlier. The government reported Thursday that retail sales unexpectedly fell 1.1 percent last month.
The BOJ also pledged to keep increasing the monetary base at an annual pace of 80 trillion yen ($663 billion), primarily by continuing to purchase Japanese government bonds, exchange-traded funds and real-estate investment trusts.
“It’s surprising that it’s been introduced," said Kazuhito Suzuki, a senior strategist at Shinkin Asset Management Ltd. “If the yield curve overall decreases, the lower rates will support the economy and weaken the yen. It’ll be positive for stocks through corporate earnings. That said, the introduction of negative interest rates is a first, so we need to keep confirming what impact it has."
Kuroda’s challenge has much in common with that of counterparts in developed nations where inflation rates have run below policy makers’ targets, in part because of the slump in oil prices. European Central Bank President Mario Draghi last week signaled more stimulus will come in March from that bank as the inflation mandate is crucial.
The Federal Reserve also signaled on Wednesday that financial turmoil also may pose risks to the U.S. economy, prompting futures traders to pare back bets on a rate increase for the world’s biggest economy in March to 14 percent.
Friday is also the busiest day of Japan’s earnings season, with 333 companies in the 1,934-member Topix reporting. Of the firms in the benchmark gauge that had posted results before Friday and for which Bloomberg has estimates, 54 percent missed analyst predictions for profit. That’s worse than last quarter, when 50 percent reported profit below expectations.
The BOJ decision comes amid the biggest test for Prime Minister Shinzo Abe since his second turn at the helm began in 2012. On Thursday, Abe suffered his worst cabinet casualty to date when Economy Minister Akira Amari, the spearhead of his “Abenomics” strategy to boost growth and competitiveness, stepped down after a week fending off allegations he received money in return for favors.
E-mini futures on the Standard & Poor’s 500 Index added 0.6 percent after the underlying measure rose 0.6 percent on Thursday as energy shares led a rebound sparked by rising crude-oil prices and as investors digested earnings from Facebook Inc. to Under Armour Inc. Amazon.com Inc. tumbled in extended trade after its earnings trailed estimates.
Real estate shares posted the biggest gain among the 33 Topix 33 industry groups, led by Ad Works Ltd., which jumped 17 percent. Energy shares also rose on crude’s recovery for a fourth day. Oil explorer Inpex Corp. and Japan Petroleum Exploration Co. both added more than 6 percent.
Banks were the only group on the Topix to fall after the central bank said it will start charging them for some of their deposits held at the institution. Shinsei Bank Ltd. was worst hit, plunging 11 percent, while Mitsubishi UFJ Financial Group Inc., the nation’s biggest lender, dropped 2.8 percent.
Lenders’ cash at the central bank will be subject to a three-tiered rate system, whereby the BOJ will continue to pay 0.1 percent on some deposits, while others will be subject to zero rates and it will charge 0.1 percent on the remainder.
Fujitsu Ltd. sank 2.4 percent ahead of its quarterly earnings report after the close of trading. Industrial equipment maker Komatsu Ltd. added 5 percent before its announcement.
Robot-maker Fanuc Corp. plunged 13 percent after cutting its operating profit forecasts. Nomura Holdings Inc. reduced its rating on the the company after the results, saying sales will likely fall next year as smartphone makers reduce demand for the company’s robotic products.
Mobile advertising agency and game creator CyberAgent Inc. soared 12 percent after announcing sales and profit rose in the first quarter. The company maintained its full-year forecast.