Japan Shares Fall Second Day Amid Oil Drop, U.S. Rate Outlook

  • Fed's Bullard latest policy maker to signal rates may rise
  • U.S. crude slumps by most in six weeks to below $40 a barrel

Japanese shares fell for a second day, with energy producers leading declines as crude oil extended its slide below $40 a barrel and speculation mounted that the Federal Reserve is moving closer to raising U.S. interest rates.

The Topix index slipped 0.7 percent to 1,354.61 at the close in Tokyo after briefly rising 0.1 percent as the yen weakened for a fifth day. More than two shares fell for each that increased. The Nikkei 225 Stock Average lost 0.6 percent to 16,892.33. Oil dropped for a second day after a report showed U.S. stockpiles climbed to the highest level in more than eight decades.

“Extreme global risk-off sentiment has diminished and now people are turning neutral again,” said Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo. “However, there’s a limit to how much buying demand there is. Investors aren’t feeling risk-on enough to pile into Japanese shares.”

Mitsui & Co. dropped 7.5 percent after the trading company forecast its first loss since it was founded in its modern form in 1947. Mitsubishi Corp. slumped 4.1 percent after a report the trading house will also report losses for the first time. Oil explorer Inpex Corp. sank 5 percent as crude prices held their biggest loss since Feb. 11. Game maker Nintendo Co. added 3.1 percent, heading for its highest close in almost six weeks.

Bear Market

The Topix has recovered about half its losses since a global equity rout at the start of the year sent the gauge into a bear market. The measure is still down about 12 percent in 2016, and is trading about 14.2 times estimated earnings. That compares with 17.2 for the Standard & Poor’s 500 Index and 15.4 for the Stoxx Europe 600 Index.

Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The underlying gauge slipped 0.6 percent Wednesday, its biggest loss in two weeks, to close below its break-even level for the year. Equities may be losing momentum after a five-week rally erased the worst start to a year ever. The S&P 500 had barely budged in the two prior sessions, and has gone eight days without a move of more than 1 percent.

Investor focus also remains locked on the Federal Reserve, which last week reduced its U.S. growth forecasts and indicated a slower pace of interest-rate increases. Traders are pricing in a 38 percent probability the central bank will boost in borrowing costs by June.

After the Fed halved its projection for rate increases this year to two -- a shift that spurred global stock gains and weighed on the dollar -- officials have started to tweak that rhetoric. 

St. Louis Fed President James Bullard joined a growing chorus of U.S. policy makers emphasizing evidence of an improving economy may mean rates have to be hiked sooner rather than later. San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart made similar comments earlier this week, saying borrowing costs may need to be increased as soon as the April meeting.

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