Japan Shares Dip With Banks as Volatility Returns to Markets

  • Banks lead decline on report BOJ mulling deeper negative rates
  • Insurers gain on speculation of change to JGB maturity range

Should Investors Brace for Further Negative Rate Action?

Japanese shares fell with banks leading declines, as uncertainty mounts in global financial markets over what’s in the pipeline from central bankers.

The Topix index fell for a sixth day at the close of trading in Tokyo as volatility returned to markets ahead of meetings by policy makers in Japan and the U.S. next week amid investor concern central banks around the globe may be reassessing the benefits of existing stimulus measures. The Nikkei Stock Average Volatility Index rose for the second time in eight days. The drop in the Topix to the lowest this month was cushioned by a rally in insurance companies.

“Investors are unwinding their positions in global equity markets ahead of the FOMC meeting,” said Takehiro Okada, head of the trading department at Rheos Capital Works Inc. in Tokyo, referring to the Federal Reserve meeting next week. “Steeper declines from here are unlikely for Japan as stock buying from BOJ will likely provide support.”

SecurityPercent ChangePrice
Topix-0.6%1,314.74
Nikkei 225-0.7%16,614.24
Yen-Dollar-0.7%103.32

An index of banks on the Topix sank 1.6 percent, extending its decline for the year to 29 percent, amid speculation the Bank of Japan will venture further into negative territory with its key interest rate. Adding to a slew of media reports predicting the BOJ’s next step, the Nikkei newspaper said the central bank will place rate-cut prospects at the focus of policy, as its asset-buying program reaches a limit.

Slightly more than half the economists surveyed by Bloomberg forecast an expansion of monetary stimulus from the BOJ at the Sept. 20-21 meeting. The BOJ doubled its annual target for purchasing exchange-traded funds to 6 trillion yen ($58 billion) as a part of its stimulus measures.

Mitsubishi UFJ Financial Group Inc., the country’s largest lender, lost 3.2 percent, while Sumitomo Mitsui Financial Group Inc. slid 1 percent. The central bank cut the policy rate to below zero earlier this year, dealing a blow to local banks’ profit margins and triggering the worst selloff in their shares since 2008.

Insurers Rise

The latest bout of selling in the banking sector unwinds a recent rally of as much as 30 percent as investors bet on the odds of the BOJ adjusting its bond purchases in favor of higher long-term yields, which could make lending more profitable.

“Investors may be more focused on the possibility of further negative interest rates,” said Kiyohide Nagata, a senior global strategist at Tokai Tokyo Research Institute Co. “And it’s unclear whether the situation will improve even if the BOJ does add to its easing program.”

The BOJ is considering either a tweak to or an abandonment of its guidance on the range of government bonds that it buys, according to people familiar with the discussions. Any shift would reflect a desire by policy makers to give themselves greater flexibility as they continue with the unprecedented scale of debt purchases, the people said

That helped insurers, which were the best performers on the Topix. Dai-ichi Life Insurance Co. gained 4.4 percent, while T&D Holdings Inc. climbed 7 percent, helping an industry gauge add 2.8 percent.

Apple supplier Alps Electric Co. rose 4 percent after reports iPhone 7 orders at some U.S. carriers surged past prior models. Japan Display Inc. advanced 4.7 percent.

U.S. equities slumped Tuesday, with the S&P 500 Index falling by as much as 1.8 percent on Tuesday before ending the session 1.5 percent lower. The decline followed the market’s worst stock rout since Brexit in June.

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