Japan Stocks Gain as BOJ Cuts Bank Funds Subject to Minus Rates

Japan's Negative Rates Fail to Boost Credit
  • MUFG, Sumitomo Mitsui, Mizuho advance at least 5.2 percent
  • Exporters provide biggest boost after banks as yen weakens

Japanese stocks rose as lenders rebounded after the central bank reduced the portion of bank funds subject to negative interest rates. Exporters gained as the yen halted a seven-day advance.

The Topix index climbed 1.5 percent to 1,299.35 at the close in Tokyo, with more than twice as many shares rising as falling. The Nikkei 225 Stock Average added 1.1 percent to 15,928.79. The yen weakened to 108.32 per dollar after climbing on Monday to the strongest since October 2014. The BOJ enlarged the share of new current-account funds that will be charged a zero percent rate.

“We’re beginning to see revisions of just how much of the banks’ balances will be subjected to negative rates,” said Koichi Kurose, Tokyo-based chief market strategist at Resona Bank Ltd. “Expectations are rising that the portion that gets charged zero will actually be larger than the amount that gets charged a negative rate.”

The Topix Banks Index jumped 5.3 percent to lead gains among the 33 industry groups on the broader gauge. The measure had tumbled 35 percent this year through Monday, the biggest drop on the Topix, on concern earnings would be hurt after the BOJ announced its new negative interest rate policy at the end of January. Mitsubishi UFJ Financial Group Inc., Japan’s largest lender, rose 5.9 percent on Tuesday while Sumitomo Mitsui Financial Group Inc. advanced 5.2 percent. 

The central bank increased the ratio applied to the portion of deposits exempt from negative rates to 2.5 percent from the initial zero. It takes effect April 16. The change thus shrinks the portion to which the rate of minus 0.1 percent is applied, a bank official said, asking not to be named due to bank policy.

“Investors are buying back bank shares on expectations that things won’t get worse from here,” said Takashi Oba, senior strategist at Okasan Securities Co.

Carmakers and electrical-appliance manufacturers were the second and third-biggest boosts to the Topix. Toyota Motor Corp. added 3.9 percent. Hitachi Ltd. jumped 4.4 percent.

Japan Earnings

Yoshinoya Holdings Co. rallied 5.1 percent after the beef-bowl restaurant chain forecast operating profit to more than double in the current fiscal year. Lixil Group Corp. fell 1 percent after reporting a preliminary full-year net loss of 20 billion yen ($185 million). The window manufacturer had earlier forecast a profit of 5 billion yen.

Nomura Holdings Inc. added 7.4 percent after a Bloomberg report said Japan’s largest brokerage plans to shut down its European equity operations after years of failing to become profitable overseas, citing a person with knowledge of the matter.

The Topix has fallen 16 percent this year, the second-worst performance among 93 primary indexes tracked by Bloomberg. The measure has been buffeted by a strengthening yen and turmoil in overseas markets ranging from Chinese equities to oil and other commodities.

The Standard & Poor’s 500 Index lost 0.3 percent yesterday. Alcoa Inc. fell in extended trading after the company, which traditionally marks the start of the U.S. reporting period, lowered its forecast for global aluminum demand. Futures on the U.S. equity gauge rose 0.1 percent today.

The Federal Reserve’s cautious stance on raising borrowing costs has served to calm a global equity rout that started at the beginning of this year. Investors are now speculating when the U.S. may raise rates, and whether the BOJ will boost its already unprecedented monetary policy program. The European Central Bank is scheduled to give a policy decision on April 21 while the BOJ is set to make similar announcements on the 28th of this month, a day after the Federal Reserve’s meeting. Traders see a zero percent chance the Fed will increase rates in April.

“We still have many monetary policy meetings coming up this month,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd. “The ECB, the FOMC and the BOJ -- we have a lot to move on so we’re seeing position adjustments ahead of this.”

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