Japanese Stocks Drop as Banks Slide Ahead of BOJ Policy Meeting

WisdomTree's Koll: Japan Is in a Holding Pattern
  • BOJ’s Nakaso says ruling out more rate cuts wouldn’t be right
  • Nintendo surges on hopes for smartphone game Super Mario Run

Japanese shares dropped for a second day as banks and insurers fell amid speculation on whether the Bank of Japan will cut its key policy rate further as part of stimulus efforts.

The Topix index slid by as much as 0.9 percent in afternoon trading in Tokyo before paring losses, after BOJ Deputy Governor Hiroshi Nakaso said ruling out a further cut to negative rates wouldn’t be the right approach. A gauge tracking lenders has dropped 25 percent this year after the central bank slashed its policy rate to below zero in January, eroding banks’ profit margins. Nintendo Co. surged after it said it will release a smartphone game featuring its popular Super Mario franchise in partnership with Apple Inc..

SecurityPercent ChangePrice
Nikkei 225-0.3%16,958.77

As investors assess the outlook for both U.S. and Japanese monetary policy, “it’s difficult to make a definitive move in either direction,” said Koichi Kurose, Tokyo-based chief market strategist at Resona Bank Ltd. “The fact that we’re not seeing oversized falls is the product of expectations for the BOJ’s ETF buying. Vitality in the market is being sapped.”

The Topix has been trading in a tight range since mid-July, as volatility remains close to the lowest level this year.

Japan’s gross domestic product expanded an annualized 0.7 percent in the three months ended June 30, more than a preliminary reading of 0.2 percent, according to revised data from the Cabinet Office released on Thursday. The median estimate of economists surveyed by Bloomberg was for a 0.2 percent increase.

The upward growth revision comes before this month’s closely watched BOJ meeting, at which Governor Haruhiko Kuroda and the board will conduct a comprehensive review of monetary policy and decide whether it should expand easing. Japan’s economic growth has remained restrained since an increase in the sales tax in 2014, though the government has brought in various monetary and fiscal policies, with the latest stimulus package planned for later this year.

“What’s most important at the moment is the BOJ,” said Nicholas Smith, a strategist at CLSA Ltd. in Tokyo. “There’re real questions over what Kuroda is going to do next. Markets are clearly very confused.”

About as many shares rose as fell on the 1,968-member Topix, while 30-day volatility on the measure sank to its lowest level since December. The yen fluctuated against the dollar.

  • Electric-appliance producers and bank shares were the biggest drags on the Topix, with Mitsubishi Electric Corp. declining 2.6 percent, and Sumitomo Mitsui Financial Group Inc. losing 1.3 percent.
  • Nintendo surged 13 percent, while DeNA Co. jumped 11 percent. Nintendo said the online game operator DeNA will help develop the Super Mario Run game.
  • Apple supplier Alps Electric Co. and Murata Manufacturing Co. sank 2.8 percent and 1.2 percent, respectively, as investors weighed the impact on their earnings from Apple Inc.’s latest iPhone lines.

Futures on the S&P 500 Index rose less than 0.1 percent. The underlying equity gauge was little changed on Wednesday, holding near record-high levels. Traders are pricing in a 22 percent chance the Federal Reserve will raise borrowing costs this month, down from 36 percent a week ago.

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