Japanese Stocks Slide as Commodity Producers Retreat on Oil

  • Financial stocks tumble as 10-year JGB yields fall to record
  • Volume in Tokyo was muted this week ahead of BOJ, Fed meetings

Making Sense of Negative Rates and Japan's Economy

Stocks in Tokyo fell as commodity producers dropped after oil declined, while investors awaited central bank meetings from the U.S. and Japan next week.

Japanese shares started the week on poor footing following last Friday’s disappointing U.S. jobs report. A mid-week recovery as oil rallied above $50 per barrel didn’t last, as uncertainty took hold ahead of next week’s monetary policy meetings of the Bank of Japan and Federal Reserve.

The Topix index dropped 0.5 percent to 1,330.72 at the close in Tokyo, ending the week with a 0.5 percent loss. The Nikkei 225 Stock Average slipped 0.4 percent to 16,601.36. The yen traded at 107.09 per dollar after strengthening to as much as 106.26 on Thursday. U.S. stocks fell for the first time in four days yesterday, with the S&P 500 Index slipping from a 10-month high, while oil posted its biggest drop since May 9.

“It’s a positive that the yen has come back and settled around 107 per dollar, but with U.S. stocks falling after hitting key levels and the weakness in oil, overseas factors won’t be supportive for Japanese stocks,” said Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo. “Ahead of the Fed and BOJ next week, and the vote on Brexit the week after, no one wants to take risks today.”

The amount of shares traded in Tokyo have been muted this week with the BOJ’s decision on monetary policy on June 16, a day after the Fed’s, and the U.K. vote on whether to remain in the European Union on June 23. Just 1.68 billion shares changed hands on Thursday, compared to an average 2.27 billion over the past year.

Futures on the S&P 500 declined 0.2 percent after the underlying gauge slipped 0.2 percent on Thursday. Oil fell from a 10-month high in New York as a stronger dollar countered a rally driven by tightening global supplies.

Commodity Stocks

Energy and raw-material producers led losses in Tokyo, with Kobe Steel Ltd. sinking 3.1 percent and Inpex Corp., Japan’s largest oil and gas explorer, tumbling 2.9 percent. Sumitomo Metal Mining Co. dropped 5.3 percent and Dowa Holdings Co., a metal miner, lost 4.6 percent as UBS Group AG downgraded its ratings on the shares.

Yields Drop

Financial stocks took a hit as yields on Japan’s 10-year government bond fell to a record low of minus 0.155 percent, damping the outlook for investment income. Sumitomo Mitsui Financial Group Inc. declined 1.3 percent, while Mizuho Financial Group Inc. lost 1.1 percent.

Insurers also fell after the Nikkei newspaper reported that non-life insurers will drop savings-type products as the BOJ’s negative interest rate policy leaves them with no suitable investments for cash generated from such plans. Dai-ichi Life Insurance Co. lost 1.3 percent, while T&D Holdings Inc. dropped 1.2 percent.

Such low yields mean “financial stocks will be sold and stocks paying fat dividends will be bought,” Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd., said by phone.

Online advertisers surged on expectations Japan’s most popular message app Line Corp. would unveil details of its initial public offering. After the market closed, Line announced it would list shares on July 15 in Tokyo, and July 14 in New York. Adways Inc. jumped 11 percent, while Imagineer Co. climbed 3.5 percent. The companies had tumbled on Thursday after a Yonhap News Agency report said a decision on an IPO hadn’t been made.

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