Japan Stocks Drop as Yen Strengthens After Abe Stimulus Package

  • Brokerages, realty shares lead declines on benchmark index
  • Risk-off mood coming to the forefront, says SMBC Nikko’s Ohta

Japanese shares fell for a third day after the yen jumped as details of the government’s stimulus package disappointed investors. Brokerages and real-estate developers led declines.

The Topix index retreated 2.2 percent to 1,271.98 at the close in Tokyo, with all 33 industry groups dropping. The Nikkei 225 Stock Average sank 1.9 percent. The yen traded at 100.90 a dollar after gaining 1.5 percent on Tuesday as a 28 trillion yen ($277 billion) spending package failed to ignite optimism Japan can revive its economy.

“A risk-off mood is coming to the forefront,” said Chihiro Ohta, a senior strategist at SMBC Nikko Securities Inc. in Tokyo. “In Japan, where many companies, especially in the auto sector, are easily affected by currency moves, the strength in the yen weighs on the overall profits for listed firms.”

Japan’s cabinet announced 4.6 trillion yen in extra spending for the current fiscal year, as Prime Minister Shinzo Abe seeks to bolster the economy without abandoning targets for improving financial health. The package comprises 13.5 trillion yen of fiscal measures, including 7.5 trillion yen in new spending starting this year, and 6 trillion yen in low-cost loans.

The stimulus itself was “as expected,” said Ichiro Yamada, general manager of equities at Fukoku Mutual Life Insurance Co. in Tokyo. There probably would have been selling “no matter what the government brought out,” he said.

Banks and electric-appliance makers were among the biggest drags on the Topix, with about 11 shares dropping for each that gained on the measure.

  • Casio Computer Co. sank 14 percent after lowering its operating profit forecast by 11 percent to 20 billion yen for the half year through June.
  • Mitsubishi UFJ Financial Group Inc. slumped 3.9 percent, the biggest drag on the Topix.
  • Honda Motor Co. rose 3.8 percent after posting operating profit that beat analyst estimates. 
  • FamilyMart Co. surged 11 percent after the operators of the Nikkei 225 Stock Average said it will add the convenience store operator to its measure. FamilyMart will merge with Uny Group Holdings Co., which also rose 11 percent.

The stronger yen has increased speculation the Bank of Japan will cut negative rates further, damping the outlook for banks’ profits, said SMBC Nikko’s Ohta. The Topix Banks Index has tumbled 33 percent in 2016 after the central bank cut rates earlier this year, leaving Japanese shares among the worst-performing developed markets. While the central bank’s latest expansion to its stimulus program -- almost doubling exchange-traded-fund purchases -- boosted shares on Friday, the measure has fallen every day since.

Futures on the S&P 500 Index lost 0.2 percent. The underlying measure fell 0.6 percent on Tuesday, declining the most in four weeks, as sliding crude prices and lackluster consumer spending data revived anxiety that global growth will falter. Oil traded near $40 a barrel in New York following a drop in U.S. stockpiles.

“With the fiscal stimulus now announced, we no longer have any additional positive news to look toward,” said Hideyuki Suzuki, general manager at SBI Securities Co. in Tokyo. As the BOJ refrained from adding to its bond purchases, “we’re in a situation where the yen can easily strengthen,” he said.

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