Japan Stocks Tumble After BOJ Holds Off on Adding to Stimulus

  • BOJ keeps bond and ETF buying, negative rates unchanged
  • A slight majority of economists had expected further easing

Shares in Tokyo tumbled, sending the Nikkei 225 Stock Average to its biggest loss since February, after the Bank of Japan maintained its monetary policy, confounding forecasts it would add to record stimulus.

The Topix index declined 3.2 percent to 1,340.55 at the close in Tokyo after the BOJ kept bond-buying, its negative interest rate and exchange-traded fund purchases unchanged. Volume on the Topix was about 48 percent higher than the 30-day average. Most economists surveyed by Bloomberg expected additional easing, with the stock gauge rising as much as 1.5 percent in the morning session. The Nikkei 225 retreated 3.6 percent to 16,666.05, its worst decline since Feb. 12. The yen surged 2.5 percent to 108.76 per dollar.

“It’s a total shock,” said Nader Naeimi, the Sydney-based head of dynamic markets at AMP Capital Investors Ltd., which oversees about $120 billion. “From currencies to equities to everything -- you can see the reaction in the markets. I can’t believe this. It’s very disappointing.”

Izumi Devalier, an economist at HSBC, said in a note earlier this week that today’s BOJ policy update would be the most closely watched meeting in recent memory. Twenty-three of 41 economists surveyed by Bloomberg last week said they expected the BOJ to add to stimulus. Nineteen predicted the central bank would increase purchases of ETFs, eight expected a boost in bond buying and eight projected the BOJ would further cut its negative rate, the survey conducted April 15-21 showed.

Since the last gathering in mid-March, a growing concern has been the yen’s continued strength, which has cast a long shadow over the outlook for wage gains and investment spending. Consumer prices dropped the most in March since 2013, data showed Thursday, adding to evidence the nation is struggling to break free of deflation.

“Investors are disappointed,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “A majority were expecting an increase in QE. They were buying Japanese stocks before the close. Quite a few people have been wrongfooted by this move, or lack of, in both equity and currency markets.”

The BOJ surprised markets in January by introducing a negative rate of minus 0.1 percent on a portion of lenders’ reserves held at the central bank. In December, the central bank said it would purchase an additional 300 billion yen ($2.7 billion) a year in exchange-traded funds to offset planned sales of shares in financial institutions that it bought in an earlier program.

Knee-jerk Reaction

“We’ve had the knee-jerk reaction to no change as the majority expected some form of action,” said Cameron Duncan, Sydney-based co-head of income strategies at Shaw and Partners, which manages the equivalent of $7.6 billion. “In, hindsight, it’s probably consistent that they haven’t done anything because they eased three months ago. There’s typically a lag in terms of response to that sort of easing. It’s the Bank of Japan and they’re pretty conservative and they are still waiting to see what the impact of that is.”

Goldman Sachs Group Inc. and HSBC Holdings Plc were among those expecting the central bank to add to ETF buying. Goldman Sachs estimated the BOJ would expand annual purchases to 7 trillion yen, while HSBC predicted an increase to 13 billion yen.

The central bank’s decision to forgo additional easing this time hasn’t deterred some from expecting more stimulus in the future. It’s inevitable that economic growth and inflation will take a downturn and given the outlook for a stronger yen, the BOJ will likely boost stimulus eventually, SMBC Nikko Securities Inc.’s chief market economist Yoshimasa Maruyama said.

Driven to Ease

“The situation the BOJ is in won’t change for the better because of its decision today,” Maruyama wrote in a note to clients. “It’ll be driven into easing further sooner or later.”

The Topix is down 13 percent this year, making it the worst performing developed market in 2016, after starting 2016 tumbling into a bear market on worries over oil prices and slowing global economic growth. The measure has climbed back 12 percent from a Feb. 12 low, bolstered by a recovery in oil prices and signs of stabilization in China’s economy.

Banks, Brokers

Financial firms led losses on Thursday among the 33 Topix industry groups, which all retreated. A sub-index tracking brokerage stocks tumbled 7.9 percent. Nomura Holdings Inc., the nation’s largest securities company, plunged 10 percent. Mitsubishi UFJ Financial Group Inc., the biggest lender, dropped 6 percent.

Some 215 companies on the Topix report earnings Thursday. Sony Corp. posted a fourth-quarter loss, while airline ANA Holdings Inc.’s forecast for operating profit missed analyst expectations. Tokyo’s stock market will be closed on Friday and May 3-5 for public holidays.

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