Japan Shares Advance for Third Straight Day Ahead of Brexit Vote

Updated on
  • Fed Chair Janet Yellen to speak to congress Tuesday, Wednesday
  • Investors had been covering short positions, Baring’s Do says

Japanese shares rose, posting its biggest three-day rally in two months, as the yen slipped for the first time in eight days ahead of the U.K. decision on European Union membership and testimony from Federal Reserve Chair Janet Yellen.

The Topix index rose 1.2 percent at 1,293.90, reversing losses of as much as 1.3 percent earlier in the day. The gauge has risen 4.2 percent since Thursday, it’s best winning streak since the three days ended April 21. The Nikkei 225 Stock Average climbed 1.3 percent to 16,169.11. The yen fell 0.5 percent to 104.50 per dollar after rising about 3 percent over the past seven days.

“There’s a lot of unwinding of positions with investors buying back shares after they drop,” said Hideyuki Ishiguro, a senior strategist at Daiwa Securities Co. in Tokyo, adding that concern over the so-called Brexit is easing.

About four shares gained for every one that fell on the 1,949-member Topix. Drugmakers, electrical-appliance manufacturers contributed the most to the index’s advance.

  • Daiichi Sankyo Co., a pharmaceutical company, surged 7.9 percent to lead gains on the Nikkei 225 after saying it will buy back as many as 28 million shares.
  • Japan Steel Works Ltd. slumped 5.3 percent to fall the most on the Nikkei 225 after Morgan Stanley MUFG Securities Co. cut its rating on the stock.

Brexit Vote

The Topix has whipsawed over the past week, with short-term volatility jumping, as investors looked to the U.K. plebiscite. Britain’s referendum on EU membership remained too close to call two days before the vote, with separate polls showing leads for both sides. Volume on the measure was about 12 percent below the 30-day average.

“We had a big short-covering rally, so where do we stand now,” said Khiem Do, the head of multi-asset strategy at Baring Asset Management (Asia) Ltd. “People are thinking maybe we should hold back a little bit and think” ahead of the Brexit vote later this week.

The Japanese gauge rallied the most in two months on Monday after a poll by Survation for the Mail on Sunday newspaper showed more Britons backed staying in the EU than those wanting to leave. The outlook was more mixed on Tuesday, with a YouGov poll for the Times newspaper published showed “Leave” at 44 percent and 42 percent for “Remain,” while a survey by ORB for the Daily Telegraph had “Remain” at 53 percent and “Leave” at 46 percent.

In the U.S., Yellen is scheduled to testify on monetary policy before lawmakers on Tuesday and Wednesday in a semiannual report, which will also serve as a cue for investors. The Fed last week signaled a cautious approach to future rate increases, scaling back its projections for the next two years. Traders are now cutting back their bets on higher borrowing costs, with less than even odds for an increase as late as February 2017.

Japan stocks slid 6 percent last week for their biggest such drop since February, hammered by concerns over the possibility of a so-called Brexit and after the Bank of Japan decided to keep monetary policy unchanged. The Topix is down 16 percent in 2016, the second-worst performer among 24 developed markets tracked by Bloomberg.