Japan Shares Drop After Biggest Gain in Two Years on BOJ

Japan’s Topix index fell, retreating from the biggest advance in two years yesterday, after the Bank of Japan kept its policy unchanged and the yen gained.

Property companies, consumer lenders and steelmakers led the drop. Mitsubishi Estate Co., Japan’s biggest developer, slumped 4.4 percent. SoftBank Corp. slid 0.4 after the Japanese mobile carrier increased its takeover offer for Sprint Nextel Corp. The Topix Pulp & Paper Index jumped 6 percent as Oji Holdings Corp. soared 8.8 percent on a ratings upgrade.

The Topix fell 1 percent to 1,101.15 at the close in Tokyo, after rising as much as 0.7 percent before the BOJ statement. The index yesterday jumped 5.2 percent, its biggest increase since March 16, 2011. The Topix surged 48 percent this year through May 22 on optimism Japan can exit deflation. The gauge entered a correction on May 30 after dropping more than 10 percent from its May high.

“Investors were expecting more,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., Japan’s fifth-largest lender by market value. “The market has been volatile and yet they look like they’re not bothered by it. Investors are concerned the economy will be hurt sooner rather than later as yields rise.”

The Nikkei 225 Stock Average lost 1.5 percent to 13,317.62, with volume 20 percent below the 30-day average. The yen rose to as much as 97.79 per dollar after the BOJ announcement.

BOJ Policy

The central bank said it will keep its policy unchanged and refrained from allowing longer fixed-rate loans to banks to stem bond market volatility, even after spikes in Japanese government bond yields. Twenty of 23 analysts in a Bloomberg News survey forecast that the BOJ would approve loans of two years or longer or said that such a move was possible.

The BOJ unveiled a plan on April 4 to buy more than 7 trillion yen ($69 billion) of bonds every month, aiming to double the amount of cash in the economy in two years, in an attempt to secure 2 percent inflation. Japan’s benchmark bond yield has swung from a record low of 0.315 percent in April to as much as 1 percent since the BOJ announced the policy.

The Topix has fluctuated an average of 3.7 percent daily since May 22. Historic volatility is near levels not seen since the 2011 earthquake and nuclear disaster.

Yesterday’s 5.2 percent jump in the Topix was the 14th-biggest since 1970, according to data compiled by Bloomberg. Shares surged after the yen weakened, Japan revised up its first-quarter gross domestic product, and the government pension fund said on June 7 it would sell bonds to buy more shares.

U.S. Stocks

Futures on the Standard & Poor’s 500 Index fell 0.1 percent today. The measure closed less than 0.1 percent lower in New York yesterday as investors weighed rating-agency S&P’s raising of its outlook for U.S. debt and Chinese data missed estimates.

Oji Holdings gained 8.8 percent to 383 yen and Nippon Paper Industries Co. climbed 8 percent to 1,340 yen. SMBC Nikko Securities Inc. raised its recommendation on both companies to outperform from underperform.

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