Asian Stocks Drop After BOJ Refrains From Adding More Stimulus

Six Step Plan for Successful BOJ Intervention
  • Yen surges and Japanese shares decline after decision
  • Oil down a sixth day in longest losing streak since February

Asian stocks fell to a three-week low as Tokyo shares led losses after the Bank of Japan disappointed investors by refraining from expanding monetary stimulus. Energy shares sank after crude extended declines.

The MSCI Asia Pacific Index dropped 1.1 percent to 125.64 as of 4:16 p.m. in Hong Kong. Japan’s Topix index sank to the lowest close in four months after the yen touched the highest level since August 2014. A gauge of Chinese mainland companies traded in Hong Kong fell the most since February, with energy shares among the worst performers. Bank of China Ltd. weighed on the Hong Kong index as the lender traded without the rights to a dividend.

The BOJ decision came after the Federal reserve signaled a more gradual path to raising interest rates, citing uncertainty over the U.K.’s June 23 referendum on whether to stay in the European Union. Anxiety that Britain will vote to leave the EU has burdened financial markets as investors speculate secession will weaken the global recovery.

Japan will “probably need to bring in some fiscal stimulus given the limits on the effectiveness of monetary policy,” said Tim Condon, head of Asian research at ING Groep NV in Singapore. “The worst case scenario if Brexit happens will be catastrophic.”

Tokyo’s Topix dropped 2.8 percent as the yen strengthened to 104.03 per dollar. With the uncertain outlook for global markets giving reason for pause, the BOJ left its benchmark rate at minus 0.1 percent and kept the annual target for increasing monetary base at 80 trillion yen ($763 billion). Some 28 percent of 40 economists surveyed by Bloomberg had projected a change in stimulus, while 55 percent predicted a change in July, according to a Bloomberg survey. 

‘Biggest Problem’

Data since the last policy meeting on April 28 indicate the economy is struggling, with the most recent reading of gross domestic product showing that business investment contracted while private spending was weak.

“The biggest problem of all remains the yen, which can certainly strengthen a little further from here,” said George Boubouras, chief investment officer at Contango Asset Management in Melbourne. “The currency issue will be the one that continue to create the uncertainty and volatility for Japanese equities.”

Hong Kong’s Hang Seng Index and the Hang Seng China Enterprises Index both slid more than 2 percent to three-week lows, as investors fled riskier assets amid growing concern over the outlook for global growth. The The Shanghai Composite Index fell 0.5 percent.

Regional Gauges

Thailand’s SET Index and Taiwan’s Taiex index dropped at least 1.3 percent, while South Korea’s Kospi index and Singapore’s Straits Times Index lost 0.9 percent. India’s S&P BSE Sensex index retreated 0.8 percent. New Zealand’s S&P/NZX 50 Index added 0.3 percent and Australia’s S&P/ASX 200 Index finished little changed.

Japanese exporters led losses across the region with Toyota Motor Corp. and Yokohama Rubber Co. sinking at least 3.3 percent on concern the stronger yen will crimp earnings from overseas. CIMB Group Holdings Bhd. fell 3 percent in Kuala Lumpur after Chief Executive Officer Tengku Zafrul Abdul Aziz said the lender’s goal of 15 percent return on equity by the end of 2018 looks ‘very challenging’ to meet. 

Hermes Microvision Inc. jumped 9.9 percent in Taipei after ASML Holding NV agreed to buy the Taiwanese manufacturer of gadgets used to inspect semiconductor wafers.

Futures on the S&P 500 Index fell 0.4 percent. The U.S. equity benchmark index finished 0.2 percent lower on Wednesday, erasing gains in a late-day selloff after the Fed decision and as mixed American growth and a sluggish global economy heightening concern the effectiveness of central-bank stimulus has reached its limits.

Reports on Wednesday showed U.S. factory production fell more than forecast in May, while manufacturing in the New York region unexpectedly expanded this month.

West Texas Intermediate crude for July delivery dropped 1.5 percent, heading for a sixth day of declines in the longest streak of losses since February, on speculation that easing global supply disruptions will offset a decline in U.S. crude stockpiles.

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