Japan Stocks Fall Second Day as Exporters Drop on Stronger Yen

  • Revised GDP data confirms economy contracted in fourth quarter
  • Stocks vulnerable to a correction after strong gains, CMC Says

Japanese shares fell for a second day as a stronger yen cut the earnings outlook for exporters and a report confirmed the country’s economy shrank in the fourth quarter.

The Topix index slumped 1 percent to 1,347.72 at the close in Tokyo, with almost four shares falling for each that rose. The Nikkei 225 Stock Average lost 0.8 percent to 16,783.15. Japan’s economy shrank an annualized 1.1 percent in the three months through December, better than economists’ projections and an improvement on the 1.4 percent contraction reported last month. The yen added 0.3 percent to 113.15 per dollar, rising for a second day.

“The reason stocks can’t rise is because the yen isn’t weakening,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd. “The market’s all over the place, and investors can’t be fully risk-on. Even if there’s good data, there’s still a strong sense of concern.”

Nonferrous metal producers fell 2.7 percent to lead declines among the 33 Topix industry groups, followed by utilities and banks. Carmakers and electric appliance manufacturers were among the biggest drags on the Topix. Suzuki Motor Corp. slumped 3.8 percent after announcing plans to sell 200 billion yen ($1.8 billion) in convertible bonds. Toshiba Corp. slid 7 percent to lead declines on the Nikkei 225 after Mizuho Securities Co. cut its rating on the conglomerate.

Recovering Losses

The Topix fell for a second day after a three-week rally left the gauge within five percentage points of a bull market. The measure had recovered most of the losses after the Bank of Japan moved to negative interest rates.

The slightly less shallow drop in Japan’s gross domestic product was affected by an upward revision in business spending before turmoil erupted in global markets this year. Private consumption lost more than expected. The economy will shrink again, according to Bloomberg’s GDP tracker. If that happened, it would be the second technical recession since Prime Minister Shinzo Abe returned to office in December 2012.

“While we’ve seen a significant improvement in sentiment, we’ve also seen very significant movement in prices,” said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Ltd. in Sydney. "Japanese markets have gone up significantly, making them vulnerable to a correction. The GDP has acted as a trigger for the selloff in Tokyo.”

Brent crude fell 1 percent on Tuesday after rising above $40 a barrel the previous day for the first time since December as major producers prepared to meet to discuss a production freeze and U.S. output finally showed signs of declining. Iron ore soared by a record after Chinese policy makers signaled their willingness to buttress economic growth.

China Trade

China’s export slump deepened in February, with imports extending a streak of declines to 16 months. A slowdown in global trade is making it harder for China’s leaders, who are gathered in Beijing this week to set the nation’s economic plans, to keep growth at the targeted 6.5 percent to 7 percent range.

Futures on the Standard & Poor’s 500 Index lost 0.4 percent. The underlying equity gauge edged higher on Monday to close up 0.1 percent as commodity producers surged with crude oil to offset declines in technology and consumer shares while investors assessed China’s growth prospects.

“Market sentiment is improving, but there’s also a sense of deadlock as well,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, said by phone. “We’re not in a state where investors are strongly bullish.”

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