Japanese Stocks Gain as Negative Bond Yields, China Offset Yen

  • Topix follows Shanghai shares higher in final 15 minutes
  • Japan sells 10-year bonds at sub-zero yield for first time

Japanese stocks closed higher after swinging between gains and losses, as negative yields on domestic bonds and China’s fresh stimulus plan increased the appeal of shares to offset the impact of a stronger yen.

The Topix index gained 0.2 percent to 1,300.83 at the close of trading in Tokyo after dropping as much as 1 percent. The Nikkei 225 Stock Average added 0.4 percent to 16,085.51, erasing losses in the final 15 minutes as China shares rallied. Crude climbed 3 percent on Monday and the People’s Bank of China announced a reduction in reserve-requirement ratios for local lenders. Japan sold 10-year bonds at a sub-zero yield for the first time on Tuesday.

“This is unprecedented,” said Mikey Hsia, a trader at Sunrise Brokers LLP in Hong Kong, about the negative bond yield. “It makes stocks more attractive.”

The Bank of Japan has pushed yields lower with the announcement of negative interest rates on Jan. 29. The auction for Japan’s 10-year government debt drew an average yield of minus 0.024 percent, the first time an average auction yield declined below zero, according to Bloomberg data going back to 1989. The bid-to-cover ratio was 3.20, up from 3.14 last month. The dividend yield on the Topix was 1.8 percent at the end of 2015.

The yen gained as much as 0.5 percent and traded at 112.63 per dollar after rising 1.2 percent the previous day amid speculation Japan won’t intervene to weaken the currency.

Yen Influence

“After seeing the yen at 114 per dollar, we’re now back at 112. We need another stage of yen weakening for stocks to rise,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, said by phone. “The China reserve ratio cut is positive” and oil prices are stabilizing, he said.

China said Monday it would reduce the amount of cash lenders must lock away in a bid to cushion a slowdown there. Manufacturing data trailed estimates Tuesday, reinforcing concern about the health of the region’s largest economy.

China’s rate cut was a mixed bag for Japanese companies that rely on the mainland for large parts of their business. Heavy machinery manufacturer Komatsu Ltd. dropped 1.3 percent, while baby-goods maker Pigeon Corp. gained 1 percent. JFE Container Co., the maker of barrels and cylinders that gets almost a third of sales from the Greater China region, lost 2.3 percent. 

NEC Slides

NEC Corp. sank 11 percent, its biggest decline since 2011, after cutting its full-year sales and operating profit forecasts, citing delays in public projects and lower spending on telecom equipment. Nomura Holdings Inc. lowered its price target on the firm, saying it expects an "only modest" recovery next fiscal year.

Gamemaker Square Enix Holdings Co. dropped for a third day, losing 0.9 percent. Shares fell sharply Friday after rival CyberAgent Inc. apologized to fans who spent large sums in failed attempts to unlock items in a smartphone game, raising worries the industry may face more regulation. Shares of CyberAgent slid 1.6 percent.

Futures on the Standard & Poor’s 500 Index slipped 0.1 percent. The underlying equity measure dropped 0.8 percent on Monday to cap a third monthly decline as a two-week rebound faltered in February’s lightly traded final session. Banks and health-care shares were the biggest drags on the gauge.

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