Japan Stocks Drop to Lowest Since February as BOJ Skips Stimulus

Yen Takes Off as BOJ Maintains Stimulus Policies
  • Yen jumps after BOJ refrains from adding to monetary stimulus
  • Fed leaves rates unchanged as Yellen cites Brexit concern

Stocks in Tokyo slumped, with the benchmark equity gauge closing at its lowest level in four months, as the yen surged after the Bank of Japan disappointed investors by refraining from adding to stimulus.

The Topix index lost 2.8 percent to 1,241.56 at the close in Tokyo, the lowest since Feb. 12, after the yen touched its highest level since August 2014. All 33 groups on the equity gauge declined. The BOJ held its key interest rate at minus 0.1 percent and kept the annual target for expanding the monetary base at 80 trillion yen ($764 billion). About 28 percent of economists in a Bloomberg survey had forecast additional easing at this meeting.

“Expectations for easing have fallen apart,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Center in Tokyo. “It’s terrible that they’re pretending to be blind. It would have been better if they had eased. ”

The Topix is down almost 20 percent this year, the steepest decline among developed markets behind Italy, as economic reports have deteriorated, stimulus from the BOJ has backfired and the yen’s surge has pressured exporters.

“The market is worried Abenomics isn’t working,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “Most companies are forecasting a much weaker yen, so it’s not going to be good for exporters.”

Rising Pressure

Pressure has been rising for BOJ Governor Haruhiko Kuroda to bolster stimulus soon given tepid economic growth and falling prices. By holding off on further expansion now, Kuroda can better consider the path of U.S. monetary policy, watch the impact of Britain’s vote on whether to leave the European Union and see the outcome of a Japanese upper house election on July 10.

"The BOJ’s decision today to maintain the status quo was the right decision,” says Norihiro Fujito, a strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “They would have run the risk of playing the few cards they have left, and seeing the effects die out in a short period of time. I think they made the right call.”

Futures on the S&P 500 Index fell 0.6 percent. The underlying U.S. equity gauge fell for a fifth day on Wednesday, the longest losing streak since February, after the Federal Reserve signaled a more gradual path to raising interest rates.

Fewer Fed officials expect the central bank to raise interest rates more than once this year, as policy makers gave a mixed picture of a U.S. economy where growth is picking up and job gains are slowing.

Brexit Vote

Uncertainty is also swirling around the U.K. referendum on June 23, when the British public will vote whether to remain a member of the European Union. Anxiety the U.K. may leave the European bloc added to gains in the yen and sent the 10-year Japanese government bond yield falling to a record low.

“Portfolio managers globally are pricing in risk,” said Mitsubishi UFJ’s Fujito. “They’re gearing up to defend themselves against events. We’re seeing a typical flight to quality, so assets are being shifted to bonds or cash, and risk assets such as stocks are being sold.”

The Nikkei 225 Stock Average sank 3.1 percent to 15,434.14 on Thursday, with all but two of its members declining. A measure of volatility on the gauge jumped to its highest since February. Exporters were the biggest drags on the Topix.

  • Isuzu Motors Ltd. fell 4.6 percent and Nissan Motor Co. dropped 4.3 percent; Yokohama Rubber Co., which forecasts earnings based on the yen at 120 per dollar, tumbled the second-most on the Nikkei 225.
  • Nitto Denko Corp. fell the most on the Nikkei 225, sinking 7.2 percent, after Mitsubishi UFJ Morgan Stanley Securities Co. cut its rating on the chemical maker, citing deterioration in the polarizing film market

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

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