Japan Stocks Fall as Nikkei 225 Enters Bear Market on Yen

Japanese stocks plunged, with the Nikkei 225 Stock Average entering a bear market at the close, as the yen rose to its strongest against the dollar in two months. All shares on the gauge fell for the second time this year.

All 33 industry groups declined on the broader Topix index, which sank 4.8 percent to 1,044.17 at the close in Tokyo. The Nikkei 225 slumped 6.4 percent to 12,445.38, its lowest since April 3 and the third fall of more than 5 percent in the past month. The gauge dropped 20 percent from its May 22 high, passing the threshold some investors use to define a bear market and wiping 42.7 trillion yen ($453 billion) from market value. Nikkei 225 futures lost 6.3 percent in Osaka.

“Selling breeds selling and it’s snowballing,” said Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages $126 billion. “There’s a global sell-off in risk assets. Short term there was froth and that needed to come out, especially in Japan.”

Toyota Motor Corp., the world’s No. 1 carmaker, was the biggest drag on the Topix as exporters plunged. Nomura Holdings Inc., Japan’s biggest brokerage, lost 4.9 percent as securities companies tumbled. Nitto Boseki Co., Japan’s third-biggest textile producer by market value, sank 9.9 percent for the biggest fall on the Nikkei 225.

Regional shares also plummeted today, with the MSCI Asia Pacific Index falling more than 10 percent from its recent high on May 20, a decline some investors define as a correction.

The Hang Seng China Enterprises Index, a measure of Chinese shares traded in Hong Kong, fell more than 20 percent from its Feb. 1 high. Australia’s S&P/ASX 200 Index lost 10 percent from its peak on May 14.

Volatility Surges

The Topix has swung an average of 3.4 percent daily since May 22. The gauge’s 30-day historic volatility reached 41.54 today, its highest since the 2011 earthquake and tsunami.

The yen today rose to its strongest level since April 4, when the Bank of Japan unveiled a plan to buy more than 7 trillion yen ($74 billion) of bonds every month in an attempt to secure 2 percent inflation. The Japanese currency gained to as much as 93.79 per dollar.

Gauges tracking carmakers and consumer-electronics producers exerted the biggest drag on the Topix today. Toyota, which gets 75 percent of its sales outside of Japan, slumped 4.6 percent to 5,590 yen. Canon Inc., the world’s biggest camera maker, lost 3.4 percent to 3,125 yen.

“Investors are worried that the yen may strengthen even further,” said Tomomi Yamashita, a fund manager who helps oversee the equivalent of $5 billion at Shinkin Asset Management Co. in Tokyo. “There isn’t any good material to boost the market right now, and investors who had bought too much are feeling uneasy and now dumping shares.”

Bond Yields

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 central bank this week refrained from adding extra policy tools to counter bond-market volatility.

Banks as a group slumped 4 percent, the third-biggest drag on the Topix. The Topix Other Financing Business Index of consumer lenders lost 6.3 percent, the biggest decline among the industry groups. Nomura Holdings slid 4.9 percent to 721 yen as all but two brokerages on the broader gauge tumbled.

The Nikkei 225 plunged on May 23 and entered a bear market today. Shares have fallen amid a strengthening yen, disappointment about Prime Minister Shinzo Abe’s delay in implementing a growth strategy and concern that the U.S. Federal Reserve will scale back stimulus. The World Bank today cut its global growth forecast as emerging-market economies led by China slow.

“Spirits were too high before,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “Investors globally who had taken on risk in both stock and currency markets are now having to correct their stance.”

The Nikkei 225 is still up 20 percent this year, making Japan the world’s best-performing major equity market.

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