Japan Stocks Fall on Yen Strength Ahead of Fed Policy Decision

Japanese stocks fell for a second day after the yen strengthened, weighing on the outlook for exporters ahead of a U.S. central bank statement on monetary policy.

The Topix index declined 0.8 percent to 1,360.50 at the close in Tokyo, with about three shares falling for each that rose. The gauge posted its first weekly loss in four weeks last week, after jumping 15 percent over the preceding three weeks. The Nikkei 225 Stock Average retreated 0.8 percent to 16,974.45. The yen traded at 113.42 against the dollar after strengthening 0.6 percent on Tuesday. The Federal Reserve concludes a two-day meeting on Wednesday.

“We’re waiting for U.S. monetary policy, so it’s difficult for investors to rush in and buy," said Chihiro Ohta, general manager of investment information at SMBC Nikko Securities Inc. in Tokyo. “Japanese shares are still moving around the higher ends of the rebound range, so declines may continue with investors taking profit."

Carmakers and machinery manufacturers were among the biggest drags on the Topix, with Honda Motor Co. falling 2.2 percent. Banks fell the most among the 33 Topix industry groups, with Mitsubishi UFJ Financial Group sinking 3.6 percent. Okuma Corp. slid 3.3 percent after Credit Suisse Group AG downgraded its rating on the industrial-machinery producer to neutral from outperform. Food-related stocks were the biggest boost to the Topix. Kobe Bussan Co. surged 11 percent after the supermarket operator announced its first-quarter operating profits rose 49 percent against the previous year.

Sony Corp. rose 3.2 percent after after unveiling a virtual-reality headset priced significantly below rival devices. 

Sharp Tumbles

Sharp Corp. sank 12 percent after people familiar with the matter said Foxconn Technology Group is delaying finalization of its deal with Sharp.

The Fed’s review follows the Bank of Japan’s decision on Tuesday to keep monetary policy unchanged, and comes as investors start to question the potency of central bank intervention. Japan’s surprise shift into negative rates in January and last week’s additional stimulus from the European Central Bank have received a mixed reception in markets as concern over a potential global slowdown and the impact of falling oil prices unnerves traders. Global equities have staged a cautious comeback since reaching a 2 1/2-year low in mid-February.

Volatility has been decreasing in Japanese shares, and the Nikkei 225 Stock Average Volatility Index is approaching its lowest levels this year.

Fed funds futures indicate there’s only a 4 percent chance the Fed will hike borrowing costs on Wednesday, while the chance of an increase by the June meeting is seen at 54 percent.

"We need to see whether we’ll have one or two rate hikes this year, and whether the next one will come in June. How currencies move will also be important," said SMBC Nikko’s Ohta.

Futures on the Standard & Poor’s 500 Index added 0.1 percent. The underlying U.S. equity gauge slipped 0.2 percent in light trading on Tuesday, posting back-to-back declines for the first time this month.

“We don’t have much to move on apart from what the Federal Reserve does,” said Seiji Iwama, a fund manager at Daiwa SB Investments Ltd. “I expect them to forego raising rates this time, and say something along the lines of the future being data dependent. I see them raising rates once or not at all this year.”

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