Japanese Stocks Fall as Yen Gains on Fed, Investors Await BOJ

  • Banks biggest drag on the Topix; Fed maintains policy stance
  • Decline follows Wednesday’s report on Abe stimulus package

Will BOJ Watchers' Wait be Worth it?

Shares in Tokyo fell, with banks slumping before the Bank of Japan’s decision on monetary stimulus on Friday, as the yen strengthened after the Federal Reserve kept interest rates unchanged.

The Topix index declined 1.1 percent to 1,307 at the close in Tokyo, with all but two of its 33 industry groups retreating. The Nikkei 225 Stock Average fell 1.1 percent. The yen added 0.6 percent to 104.82 a dollar after the Fed underscored its gradual approach to tighter monetary policy, casting doubt on officials’ willingness to raise borrowing costs before year-end.

Japanese markets have whipsawed in recent weeks following differing reports on the central bank’s monetary easing program. BOJ officials are looking at multiple proposals for stimulus, the Nikkei newspaper said Wednesday. Disbursing so-called helicopter money via perpetual bonds, an idea floated by an adviser to Prime Minister Shinzo Abe, was rejected by the central bank’s governor Haruhiko Kuroda in a BBC interview broadcast last week. The BOJ began its two-day meeting on Thursday.

“Investors are wary that the BOJ will disappoint and it’ll lead to a bout of selling,” said Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management Co. “The bar’s already been raised too high for the BOJ’s policies. Unless there’s some sort of policy that crosses that line, such as helicopter money, Japanese stocks will be sold and the yen will be bought.”

Stimulus Reports

Japanese shares gained on Wednesday after a Kyodo News report cited Abe as saying that a stimulus package of more than 28 trillion yen ($266 billion) would be compiled next week. The Nikkei report on monetary easing said BOJ officials were considering cutting interest rates further into negative territory, expanding government bond-buying beyond 80 trillion yen annually and boosting purchases of other assets such as exchange-traded funds.

Thirty-two of 41 analysts forecast that Kuroda and the BOJ board will expand their record program at this week’s meeting, according to a Bloomberg survey conducted July 15-22.

Banks, still reeling from the BOJ’s decision in January to adopt negative rates, were the biggest drags on the Topix on Thursday. This week is also the busiest time for Japanese corporate earnings, with more than 500 firms reporting on Thursday and Friday.

  • Fujifilm Holdings Corp. slumped 9.9 percent after posting first-quarter profit that missed analyst expectations. Mitsubishi UFJ Morgan Stanley Securities Co. said the company’s profits and margins in one of its businesses were negatively impacted by the yen’s strength.
  • Alps Electric Co. surged 11 percent after the electronics manufacturer’s first-quarter profit beat analyst estimates.
  • Advantest Corp. jumped 9.4 percent after the semiconductor testing device maker boosted its full-year profit forecast.

Futures on the S&P 500 Index climbed 0.2 percent on Thursday. The underlying measure slipped 0.1 percent Wednesday following the Fed decision, with earnings and the price of crude largely setting the tone for individual shares.

The dollar slid against a basket of 10 of its peers after Fed officials repeated that “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Still, risks have diminished and the labor market is getting tighter, suggesting conditions are getting more favorable for an increase in borrowing costs, officials said. The probability of a rate increase by the end of the year was at 45 percent, down from 48 percent at the start of the week.

“It’s difficult to tell whether the Fed will raise rates this year,” said Masakuni Fujiwara, chief executive officer at VistaMax Fund Advisors Ltd. in Tokyo. “The yen’s move is affecting the Japanese stock market, but investors are also taking profit after the size of the country’s fiscal stimulus package became clearer.”

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