Japan Shares Drop Amid Global Selloff on Interest-Rate Concern

  • Volatility jumps the most since June as lower rates questioned
  • Topix index has biggest decline in more than three weeks

Japan Outlook: What Is the BOJ's Next Move?

Japanese shares slumped as a selloff in global markets spurred the biggest jump in volatility in three months, amid speculation central banks are questioning the rationale for keeping interest rates low for longer.

The Topix index fell for a fourth day, dropping the most in more than three weeks. The Nikkei Stock Average Volatility Index surged 18 percent, marking its biggest jump since June 13. Federal Reserve Bank of Boston President Eric Rosengren said the world’s biggest economy could overheat should policy makers wait too long to tighten, triggering a selloff in global stock markets. Meanwhile, the Bank of Japan meets next week for its monthly rate-setting meeting, with investors debating the scale of any further stimulus.

“The volatility was a little too low for the last two-three weeks, not because people were missing the opportunities, but people were lacking confidence on what the next move should be,” said Toru Ibayashi, head of Japanese equities at UBS Group AG’s wealth management unit in Tokyo. “People were looking for clues and that’s what we found last Friday. Before, there was no consensus what the next Fed move or BOJ move will be.”

SecurityPercent ChangePrice
Nikkei 225-1.7%16,672.92

The Topix has been unable to break out of a range since February, after it plunged as much as 23 percent to this year’s low, as global equities slumped into a bear market and the yen jumped. Investors lacked confidence over what the BOJ’s next move will be to shore up inflation and asset prices. The benchmark gauge, which is down 14 percent this year, is the second-worst performer among developed markets.

At its Sept. 20-21 meeting, the BOJ will also unveil the results of a comprehensive policy review, which analysts say has sparked confusion among investors about the Japanese central bank’s policy direction. Governor Haruhiko Kuroda emphasized in a speech last week that the review won’t result in any reduction in monetary stimulus, while “other new ideas should not be off the table.”

“What’s a comprehensive assessment? It’s a magic word people don’t know anything about. But now it seems to be, maybe easing, but not a surprising, bazooka-type easing,” Ibayashi said. 

Despite Monday’s decline, volumes on the Topix were about 11 percent below the 30-day average.

All 33 industry groups on the benchmark index declined for the day, with banks and electrical-appliance makers weighing most on the measure. A gauge tracking banks lost 4.5 percent over the past four sessions as investors grew skeptical over the prospects of lenders benefiting from a steeper yield curve.

  • Electric-appliance makers were the biggest drag on the Topix, with Sony Corp. down 3 percent and Murata Manufacturing Co. falling 3.8 percent.
  • Mitsubishi UFJ Financial Group Inc., the country’s biggest lender, dropped 2.5 percent. Banks rallied for the most of July and August as a spike in long-term interest rates spurred optimism over lending profits.
  • Kumiai Chemical Industry Co. slumped 12 percent after it cut its full-year operating profit forecast 41 percent to 1.9 billion yen ($19 million).
  • Calsonic Kansei Corp. jumped 7.2 percent after Reuters reported Friday that KKR, Bain Capital and MBK Partners will submit second-round bids for Nissan Motor Co.’s 41 percent stake in the maker of auto parts.
  • Sumitomo Chemical Co. slid 2.5 percent after Iwai Cosmo Securities Co. downgraded the stock to neutral.

“The issue isn’t merely limited to the U.S. What’s looming here the most is that the extraordinary easing trend that we’ve seen globally thus far may be approaching its limits,” Norihiro Fujito, a Tokyo-based senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said.

Futures on the S&P 500 Index fell 0.6 percent, as the odds of a U.S. rate increase by the end of the year stood at 60 percent, according to data compiled by Bloomberg. The underlying equity gauge has been trading in a tight range after rising to a record high in mid-August.

Rosengren’s comments came a day after European Central Bank chief Mario Draghi played down the prospect of further stimulus.

Kenji Ueno, portfolio manager at Sompo Japan Nipponkoa Asset Management, said that higher U.S. interest rates should benefit Japan because they would signal confidence that the world’s largest economy is mending.

"It’s extremely simple, but the U.S. will raise rates because the economy is steady,” Ueno said. “Japan’s stock market is sensitive to the world economy, so if the U.S. economy improves, stocks will also climb.”

— With assistance by Shin Shoji

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