Japan Stocks Fall as Strengthening Yen Overshadows U.S. Rally

  • Seshimo says markets digesting idea that BOJ is out of options
  • Resource and energy stocks lead gains while fisheries fall

Japanese stocks fell as a stronger yen snuffed out early gains spurred by a rally in U.S. stocks.

The Topix index slid 0.7 percent to 1,291.17 at the close in Tokyo, wiping out an earlier advance of 1.2 percent. The Nikkei 225 Stock Average lost 0.4 percent to 16,052.05. The Standard & Poor’s 500 Index rallied to an almost seven-week high as Brent crude soared more than 5 percent Monday. The yen resumed strengthening as investors weighed the Bank of Japan’s ability to further weaken the currency.

“It’s beginning to feel like the BOJ is completely stuck,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo. “The yen had been trading at historically low levels that implied an endless amount of easing, but now doubts are emerging. It’s difficult to imagine any scenarios where the BOJ can take action.”

Even as the S&P 500’s Monday rally saw it recover all of its losses since the end of January, the Topix still remains almost 10 percent below its Jan. 29 close. The yen has risen more than 7 percent in that time frame, aided by a view that the BOJ has run out of options. The currency strengthened 0.6 percent to 112.30 per dollar on Tuesday.

Policies adopted by Japan’s central bank are akin to “hitting the gas and brake pedals at the same time,” said Seshimo. The benefit of any more asset purchases will be offset by negative rates, while lowering those rates even further into negative territory would only confound investor confusion, he said.

Oil Rally

West Texas Intermediate March crude futures surged on Monday on speculation that a production freeze by some OPEC members and Russia could eventually help to abate the surplus. Russia said talks on an output freeze will be done by March 1, while Nigeria said some countries should have production capped at higher levels. Oil futures pared gains on Tuesday, falling 1.8 percent.

“Higher oil prices imply the economy is sound, which would open the possibility for us to see investor sentiment turn for the better,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, said by phone.

That was reflected in the S&P 500’s 1.5 percent surge on Monday as investors continued to load up on some of the year’s worst performers. Banks rose for the fifth time in six days, while copper miner Freeport-McMoran Inc. climbed almost 15 percent. The Chicago Board Options Exchange Volatility Index fell under 20 for the first time in three weeks, indicating market risk is abating. E-mini futures on the S&P 500 slipped 0.4 percent on Tuesday.

Resources Rally

The U.S. optimism resonated in resources-related stocks, which led gains in Japan on Tuesday. Nippon Steel & Sumitomo Metal Corp. jumped 4 percent, while steel producer JFE Holdings Inc. surged 5.7 percent. Industrial stocks also advanced, with heavy machinery makers Komatsu Ltd. climbing 1.4 percent.

Lenders rebounded, led by Aozora Bank Ltd., which surged 2.2 percent. Goldman Sachs Group Inc. lifted its rating on the lender and said its overseas earnings, lower funding costs and dividend yield were making shares attractive.

Goldman Sachs also lowered its rating on brokerage Nomura Holdings Inc., sending shares of Japan’s largest brokerage 1.8 percent lower. The New York-based firm cited weakness in Nomura’s overseas operations for the downgrade.

Sharp Corp. jumped 3.5 percent after Jiji Press and the Mainichi newspaper separately reported the firm is likely to choose Foxconn Technology Group’s bid for the Japanese company’s operations. The maker of smartphone displays and refrigerators is expected to vote on Feb. 25, according to Jiji and Nikkei. Sharp said it hasn’t made a decision.

Takata Corp. sank 4.3 percent after the U.S. auto-safety regulator said it’s investigating all the company’s air-bag inflators that use a chemical propellant banned from future models and will compile data to determine whether to expand the industry’s broadest recall ever. Separately, Reuters reported the air-bag maker may face up to 90 million more recalls, while Yomiuri said the company will update automakers on Thursday about a probe of its products.

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