Japan Stocks Close Lower as Volatility Surges to Four-Year High

Updated on
  • Inpex leads energy explorers lower as oil falls below $45
  • Short-selling surged on Tuesday to highest ratio since 2008

Japanese stocks closed lower for a third day after swinging between gains and losses throughout the trading session, sending a measure of short-term volatility to a four-year high.

Daio Paper Corp. plunged 18 percent after saying it would sell convertible bonds in Japan. Oil explorer Inpex Corp. slumped 3.6 percent as oil dropped below $45 a barrel. Tsumura & Co. jumped 9 percent, pushing up a gauge of pharmaceutical stocks. Hankyu Hanshin Holdings Inc. gained 5.9 percent after the rail company’s shares were upgraded by Barclays Plc.

The Topix index sank 0.8 percent to 1,465.99 at the close of trading in Tokyo, swinging from gains of as much as 1.2 percent. Ten-day historical volatility on the gauge surged to 52.6, its highest level since March 2011, while volume on the measure was 19 percent above its 30-day average. The Nikkei 225 Stock Average lost 0.4 percent to 18,095.40.

“The market moves are very extreme,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo, which oversees about 758 billion yen ($6.3 billion). “The market is split into ones that think we’re having a bit of a correction in a bull market, and others that think the market is bearish. I think at these levels, and with earnings growth, it’s a good time to buy.”

Bearish Bets

Investors in Japan have turned the most bearish on equities in almost seven years. Short-selling accounted for 41 percent of trading on the Tokyo Stock Exchange on Tuesday, the highest ratio since the bourse began keeping daily records in 2008.

“I can’t see the signs of the sell-off being over,” said Chihiro Ohta, general manager at SMBC Nikko Securities Inc. in Tokyo. “But after big drops, some investors are going to be looking to buy, and others will be covering their short positions.”

Futures on the Standard & Poor’s 500 Index added 1.1 percent after the underlying measure fell 3 percent on Tuesday, its third-biggest loss of 2015, as reports showed U.S. manufacturing grew at the slowest pace in two years and China’s official factory gauge slumped to the lowest in three years.

A rout in global equities last month erased more than $5 trillion from the value of shares as Chinese policy makers tried to bolster their market amid growing concern that its economy may be in worse shape than analysts had estimated. Morgan Stanley reduced its forecast for world growth this year and next on Monday, citing weakening industrial activity in China.

U.S. Rates

The prospect of a Federal Reserve rate increase this month is also weighing on sentiment toward equities. The Fed is scrutinizing data to determine the timing and pace of its first boost to U.S. borrowing costs since 2006. Attention will focus this week on the government’s August jobs report, due Friday, as the last major data point before the Fed meets Sept. 16-17.

Bets on an increase in September have fallen to 30 percent, down from 48 percent two weeks ago, according to data compiled by Bloomberg.

Daio Paper plunged 18 percent after saying it would sell 30 billion yen of convertible bonds in Japan, leading a decline by paper makers, which fell the most among the 33 Topix industry groups.

Inpex sank 3.6 percent, while Japan Drilling Co. lost 1.8 percent. Oil explorers and producers posted the second and third-biggest decline among the Topix subsectors.

Tsumura jumped 9 percent, leading gains among drugmakers. Credit Suisse Group AG raised its target price on Tsumura shares and upgraded the stock to outperform from neutral.

The Topix Land Transportation Index added 0.5 percent, leading gains among the four industry groups that rose. Hankyu Hanshin jumped 5.9 percent, the most since 2013, after Barclays boosted its investment rating on the rail stock to overweight from equalweight.