Japanese Stocks End Two-Day Rebound as Crude Oil Resumes Plunge

  • Bank shares fall ahead of quarterly earnings at SMFG
  • Exporters drop as yen gains against dollar for second day

A plunge in crude prices was enough to derail a two-day recovery in Japanese stocks, highlighting once again the hold oil has over the equities market.

Shares tumbled in Tokyo as crude’s 5.8 percent drop on Monday rekindled concerns about global economic growth, overshadowing expectations that the Bank of Japan may provide monetary relief later this week. The impact of crude’s selloff on inflation and earnings is worrying traders, with stocks and oil prices now the most correlated since 2013.

“Investors tend to see the decline of oil as a direct indication of slower global growth and weakness in emerging market economies,” said Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo. “This is making the overall atmosphere worse.”

The Topix index sank 2.3 percent to 1,360.23 at the close in Tokyo after capping its first back-to-back gain of the year on Monday. The Nikkei 225 Stock Average lost 2.4 percent to 16,708.90. Crude resumed a slide, dropping below $30 a barrel, while the yen climbed for a second day. Chinese shares also plunged, with the Shanghai Composite Index falling 6.5 percent.

Shippers Drop

Shippers led losses as prospects for weaker economic activity damped the outlook for global trade, sending Kawasaki Kisen Kaisha Ltd. 6.8 percent lower for its biggest decline since November.

Energy shares were the second largest decliners among the Topix’s 33 industry groups, with Inpex Corp. dropping 4.3 percent. The oil explorer has lost about 800 billion yen ($6.8 billion) in market value since June when crude traded at around $60 a barrel.

“The recent drop in oil prices to $28, $27 and even $25 a barrel was a result of markets pricing in a hard-landing for the Chinese economy,” said Tatsushi Maeno, head of Japanese equities at Pinebridge Investments Japan Co. in Tokyo. “In the short term, we’re unlikely to see new economic data that completely dispels the hard-landing scenario, so for the time being crude may continue trading around $30 a barrel.”

Tuesday’s losses brought an end to a two-day rally that began after the European Central Bank indicated on Thursday it may expand easing as soon as March. Speculation mounted the Bank of Japan also may deliver more market-friendly rhetoric or action at its monetary policy meeting on Jan. 29. Some BOJ officials view it a close call as to whether the policy board will add to stimulus at the meeting, according to people familiar with discussions at the central bank.

Stock Volatility

Japanese stocks have been volatile after both the Topix and Nikkei 225 tumbled into bear markets last week. The Topix has had moves of more than 1 percent each day since then, dropping a total of 6.4 percent on Wednesday and Thursday and then rebounding 7 percent over the next two sessions. The gauge is down 12 percent this year.

E-mini futures on the Standard & Poor’s 500 Index lost 0.5 percent after the underlying measure dropped 1.6 percent Monday, with losses piling up in the last hour of trading as crude sold off. Even after it staged a recovery late last week, oil is down 20 percent this year as brimming U.S. stockpiles and the prospect of additional Iranian exports fuel anxiety over a global glut.

Banks in Japan declined on Tuesday, led by a 3.7 percent drop in Mitsubishi UFJ Financial Group Inc. Sumitomo Mitsui Financial Group Inc. lost 2.4 percent before its quarterly earnings announcement expected after markets closed.

SoftBank Group Corp. tumbled 3.4 percent after subsidiary Sprint Corp. sank 12 percent in U.S. trading. Shares of the U.S. wireless carrier surged 15 percent on Friday after it moved forward the date of its annual earnings by a week.

Exporters fell as the yen strengthened against the dollar for a second day, with Toyota Motor Corp. becoming the biggest drag on the Topix with a loss of 2.9 percent.

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