Japanese Shares Wipe Out August Loss as Yen Drops on Fed Bets

Japan May Stimulate Activity in Quiet Market, Says Dewan
  • Banks and exporters drive gains as yen extends declines
  • Benchmark Topix chalks first August gain in seven years

Japanese shares rose, with the benchmark stock wiping out the month’s losses, after the yen extended its declines on bets the Federal Reserve will move to raise interest rates this year.

Banks and exporters drove gains on the Topix index, helping it record its first August advance since the corresponding month in 2009. The measure advanced 0.5 percent in August, while the yen fell 1.2 percent against the dollar this month. Shares in Tokyo have climbed 3.2 percent since Friday, when Fed Chair Janet Yellen bolstered expectations for a rate hike in September by saying that the case for tighter monetary policy has strengthened. Her comments ignited a selling spree in the yen, boding well for exporters like auto and machinery makers.

Fed’s Vice Chairman Stanley Fischer said on Tuesday that any rate increase will be data dependent, reiterating the Fed’s stance on monetary policy. Traders put the likelihood of a U.S. rate hike by December at 59 percent in the futures market, up from 36 percent at the start of the month.

SecurityPercent ChangePrice
Topix+1.3%1,329.54
Nikkei 225+1.0%16,887.40
Yen-Dollar-0.2%103.20

“If indeed the U.S. is able to go ahead with a rate hike, it could be interpreted as proof that the U.S. and global economy is stabilizing, which will be good for exporters and cyclical stocks in Japan that have previously been under selling pressure,” said Masahiro Ichikawa, a Tokyo-based senior strategist at Sumitomo Mitsui Asset Management Co.

Until last week, Japanese equities have been largely trending downward, amid fading optimism over Prime Minister Shinzo Abe’s efforts to boost the economy even as the government announced a fresh 28 trillion yen ($271 billion) stimulus late July. The Bank of Japan has done its part by doubling up on the purchase of exchange-traded funds with an annual target of 6 trillion yen, which analysts say helped cushion any steep price declines. 

All but four of the 33 industry groups on the Topix advanced on volume 13 percent higher than the 30-day average, following weeks of subdued trading. Banks contributed the most to the Topix’s ascent among industry groups, while electrical-appliance makers and automakers also provided a boost.

“The BOJ looks set to stand by its accommodative monetary policy in September, but market expectations are for the central bank to shun any deeper cuts into minus territory for interest rates,” said Yoshihisa Okamoto, head of equity research at Mizuho Asset Management. “Without further rate cuts, earnings for banks may not be as bad as expected, making their stocks look cheap.”

  • A gauge tracking banks added 3.6 percent to its highest since April, as Mitsubishi UFJ Financial Group, the country’s largest lender, rose 4.2 percent.
  • Display-equipment makers Nikon Corp. and Ulvac Inc. jumped 2.4 percent and 8.3 percent, respectively. The two companies are expected to get a boost from new organic light-emitting diode, or OLED, panel equipment orders, the Nikkei newspaper reported.
  • Mazda Motor Corp. climbed 4.8 percent. The company said it plans to invest 22.1 billion yen for a power-train plant in Thailand and increase engine output in the Southeast Asian country.
  • Mitsubishi Motors Corp. slid 1.5 percent. The automaker said it has been ordered to restate mileage figures after tests by the transport ministry found more models had inflated ratings.

Traders put the chance of a U.S. rate increase as early as September at 34 percent, according to Bloomberg data.

“Fischer’s comments aren’t different from what he has said previously, but the reiteration of his stance may encourage some to further weigh odds of a September hike,” said Chihiro Ohta, a Tokyo-based senior strategist with SMBC Nikko Securities Inc.

Futures on the S&P 500 Index fell less than 0.1 percent. The underlying measure slipped 0.2 percent on Tuesday ahead of a slew of economic data due this week including manufacturing on Thursday and a payrolls report on Friday.

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