Japanese Stocks Fall, Halting Two-Day Rally as Oil Resumes Rout

  • Commodity producers lead decline as drugmakers, utilities gain
  • As earnings season progresses, half of firms miss estimates

Japanese stocks fell, halting a two-day rally, as commodity producers led declines after crude oil resumed its rout amid concern that China’s economy is slowing. Drugmakers and utilities gained.

The Topix slipped 0.7 percent to 1,452.04 at the close in Tokyo. The gauge rallied more than 5 percent over the previous two days after the Bank of Japan boosted stimulus. Volume on the measure was 20 percent above the 30-day average with two shares rising for each that fell. The Nikkei 225 Stock Average dropped 0.6 percent to 17,750.68. The yen added 0.4 percent to 120.49 per dollar. The currency weakened 1.9 percent on Friday.

“The primary beneficiary from the BOJ’s negative rates is obviously the yen,” said Akio Yoshino, chief economist in Tokyo at Amundi Japan Ltd., which oversees about 3.74 trillion yen ($30.9 billion). “However, it’s not like there’s been a real change on a structural level to maintain a weaker yen. We should hold defensive stocks with high dividend yields.”

Mitsubishi UFJ Financial Group Inc. closed 0.4 percent higher, having swung between gains and losses of more than 2 percent, after reporting late Monday that third-quarter profit fell 27 percent, which was better than analyst estimates. The result came after two days of declines in bank shares following the BOJ’s surprise decision Friday to start charging lenders 0.1 percent for some of their deposits, a move that may crimp earnings. The Topix Banks Index is down 21 percent this year.

“The bank selloff has been overdone,” Yoshino said. “Investors got too bearish and considering the megabanks still own a lot of stocks that they’ll unwind, the outlook for profits to decline went too far.”

Energy explorers declined after crude fell for a second day, halting the longest winning run this year after an index of Chinese manufacturing dropped to a three-year low. Oil explorer Inpex Corp. sank 4.9 percent, while Japan Petroleum Exploration Co. lost 3.7 percent.

Mobile provider NTT Docomo Inc. slumped 3.6 percent, paring Monday’s 14 percent surge that took its share prices to overbought levels on its 14-day relative strength index.

The Topix fell into a bear market on Jan. 20, buffeted by concerns of a slowdown in China and the rout in oil and other commodities. That prompted the BOJ last week to boost stimulus by introducing a negative interest rate on a portion of current accounts held by financial institutions at the central bank.

“The falling oil price will be negative for market sentiment,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, said by phone. “Investors bought back shares after the BOJ introduced negative rates, but with the weakening yen pausing for now, it looks like the market will try to assess the new policy’s impact today.”

U.S. Rates

Federal Reserve Vice Chairman Stanley Fischer said Monday that the impact of market turbulence on U.S. growth will factor into American policy decisions.

E-mini futures on the Standard & Poor’s 500 Index slipped 0.6 percent. Senator Ted Cruz of Texas won the Iowa Republican caucuses in an upset over billionaire Donald Trump, while Democrat Hillary Clinton was clinging to the narrowest edge over Senator Bernie Sanders of Vermont.

The underlying U.S. measure closed little changed Monday, paring declines of as much as 1 percent after the dovish comments from Fischer, who said the central bank’s policy moves are not predetermined. Futures traders see just an 18 percent chance of another U.S. rate increase in March.

BOJ Governor Haruhiko Kuroda faces a similar challenge to that of counterparts in developed nations where inflation rates have run below policy makers’ targets, in part because of the slump in oil prices. European Central Bank President Mario Draghi last month signaled more stimulus will come in March from that bank as the inflation mandate is crucial.

More than 80 companies in the 1,934-member Topix report earnings Tuesday. Of the firms in the benchmark gauge that have posted results and for which Bloomberg has estimates, 51 percent missed analyst predictions for profit.

Before it's here, it's on the Bloomberg Terminal.