Japan Economy Chief Warns Against Panic Over Stock Sell-Off

Japan’s economy minister said there’s no reason to be perturbed by today’s sell-off in the nation’s stocks, as the recent surge in equities was faster than expected and the economy is steadily recovering.

“There’s no need to be perturbed as the Japanese economy is recovering soundly,” Akira Amari told reporters in Tokyo today. “We will closely watch market movements.”

Amari spoke after Japan’s Topix Index of equities tumbled 6.9 percent, the most since the aftermath of the earthquake and tsunami in March 2011. Volatility also hit the bond market today, with a surge in 10-year government-debt yields to the highest level in more than a year prompting the central bank to inject liquidity. Bonds later rose, sending yields down, as stocks plunged, while the yen strengthened.

“Stock prices and the exchange rate are correlated, so it’s natural that such a big fall in stocks brings about a swing to a stronger yen,” Amari said. “We will continue to calmly proceed with pragmatic policies.”

The Nikkei 225 Stock Average fell 7.3 percent today and the yen strengthened 1.8 percent to 101.36 per dollar at 6:09 p.m. in Tokyo, the strongest since May 10.

The Bank of Japan continues to be in close communication with financial markets, Amari said. The BOJ will hold a meeting with investors and market participants on May 29 to discuss recent market movements, the central bank said yesterday.

Chinese Contraction

Japanese Cabinet members highlighted a decline in a Chinese manufacturing gauge today as a potential trigger for the drop in shares. The preliminary reading of 49.6 in May for a Purchasing Managers’ Index for China released today by HSBC Holdings Plc and Markit Economics indicated the first contraction in seven months in Asia’s largest economy.

Chief Cabinet Secretary Yoshihide Suga told reporters earlier that Japanese stocks were reacting partly to worsening Chinese data, and that recent stock-price gains had been unprecedented. The Topix index remains up 52 percent for the past six months. Amari also said today’s drop could be related to Chinese figures.

Vice Finance Minister Shunichi Yamaguchi told reporters that the central bank is responding as needed.

BOJ Governor Haruhiko Kuroda said yesterday the BOJ will adjust the central bank’s stimulus program as needed. He said that he doesn’t expect yields to jump a lot and bond market volatility wasn’t affecting Japan’s economy yet. The BOJ’s injection of 2 trillion yen ($19.7 billion) at its offices around the country was a response to excessive volatility in long-term yields, according to an official who asked not to be named due to the central bank’s policy.

Before it's here, it's on the Bloomberg Terminal.