Japan Stocks Fall After GDP Data as Yen Rises on Paris Attacks

  • Japan back in recession as economy shrinks in third quarter
  • France bombs Islamic State stronghold in response to terrorism

Japanese stocks fell as a report showed Asia’s second-biggest economy fell back into recession and the yen rose as investors sought the safety of haven assets in the wake of the Paris terrorist attacks.

The Topix index lost 0.9 percent to close at 1,571.53 in Tokyo as all but two of its 33 industry groups declined. The yen strengthened as foreign-exchange markets opened for the first time since the Nov. 13 attacks in Paris that killed at least 129 people. Data released in Tokyo showed Japan’s economy contracted an annualized 0.8 percent in the third quarter as company spending fell, after gross domestic product shrank a revised 0.7 percent in the previous three months. Economists expected a 0.2 percent drop.

“Global markets may turn to risk-off in the short term as geopolitical risk rises,” said Kiyoshi Ishigane, chief strategist at Mitsubishi UFJ Kokusai Asset Management in Tokyo. “But I think the impact to the global economy is limited, even if there is some impact on the French and EU economies.”

The Nikkei 225 Stock Average fell 1 percent to 19,393.69. The yen added 0.1 percent to 122.45 per dollar. E-mini futures on the Standard & Poor’s 500 Index declined 0.4 percent after the underlying gauge slumped 1.1 percent Friday.

Most Topix Industry Groups Drop

Exporters, banks and retailers contributed the most to the Topix’s decline, while airlines fell the most. DeNa Co. sank 8.3 percent to lead the Nikkei 225 lower after a brokerage reduced its rating on the online game maker. Travel agency H.I.S. Co. slumped 5 percent after a report it would refund tours to France if customers cancel them.

The violence in one of Europe’s most heavily-policed cities may heighten investor concern about the global political and economic outlook. The dollar is often bought amid turmoil as the world’s reserve currency while Japan’s current-account surplus makes it attractive when investors seek safety.

France’s air force bombed Islamic State’s Raqqa stronghold in response to the worst act of terrorism Europe has suffered in a decade. Friday’s attacks on Paris were ordered from Syria, French officials said.

Airlines led the drop in Tokyo, with ANA Holdings Inc. and Japan Airlines Co. losing 3.5 percent and 3 percent respectively. Airlines stocks across the Asia-Pacific region fell because of concerns about more terrorist attacks, says Andrew Sullivan, managing director for sales trading at Haitong International Securities Group in Hong Kong.

Bank of Japan officials would view the GDP data as unlikely to change their outlook for an improving trend in inflation, people familiar with discussions at the central bank said last week. The officials acknowledge that risks for prices and the economy are skewed to the downside and said the BOJ stands ready to adjust policy if needed, according to the people, who asked not to be identified because the talks are private.

Stimulus Outlook

“There’s short-term risk off in Japan as people digest the GDP numbers,” said Andrew Clarke, director of trading at Mirabaud Asia Ltd., a Hong Kong brokerage. “GDP being worse than expected will give the Japan bears something to talk about, but long-term it means more stimulus on its way.”

The economic downturn this year has not stopped a rally in Japanese stocks as investors focus more on profit growth. The Nikkei 225 advanced 12 percent this year through last week as its companies post record earnings, with valuations rising just 2.3 percent from the end of last year.

Globally, only two other stock markets can boast similar gains this year without stretching valuations, data compiled by Bloomberg show. They’re both in the euro zone, where central bank easing has also been a defining feature.

Of the firms in the broader Topix that have announced quarterly earnings and for which Bloomberg has estimates, 55 percent topped analyst predictions for profit.

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