Weaker Japan Stocks Beg Question of Whether U.S. Rally Can Last

  • VIX may signal investors are getting nervous: Sumitomo Mitsui
  • S&P’s RSI indicates recent advance may have been too rapid

Investors in Japanese equities brushed aside a seven-day rally in U.S. stocks to record highs, begging the question of whether the latest gains are sustainable amid uncertainty over U.S. President Donald Trump’s policies.

The Topix index slid after the VIX Index, a key measure of future volatility in U.S. markets, jumped 11 percent for its biggest gain in two and a half weeks. Automakers and telecommunications companies weighed most in the broader market, while the yen rose for a second day against the dollar. Insurers and banks outperformed, buoyed by expectations for a steeper yield curve after data showed a U.S. consumer-price index rose more than economists forecast.

“The swing on the VIX Index isn’t as big as it was on, say, the U.S. election day but the move feels like a sign investors are getting cautious about the recent huge run-up to record highs in U.S. equities,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd. “If the decline today in Japanese shares spills over to Europe and then to New York, things could get serious, but we’ll have to see.”

The 14-day relative strength index for the S&P 500 rose to a six-year high of 78, remaining above 70, a level used by some traders as a signal shares are poised to fall.

“It’s possible we’re seeing some algorithmic trading moving markets,” Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “With Trump’s stance on currencies still unclear, it’s difficult for the yen the weaken and the dollar to strengthen much further.”

Summary

  • Topix -0.2% to 1,551.07 at the close in Tokyo
  • Nikkei 225 -0.5% to 19,347.53
  • Yen +0.2% at 113.90 per dollar
  • Technology companies weigh most; Toshiba -3.3%, Tokyo Electron -2.2% as MUFJ-MS says good news already priced in as NAND flash bubble peaks
  • Gauge tracking automakers -0.3%; Toyota Motor -0.5%, Honda Motor -0.6%
  • Telecommunications companies down; NTT -1.1%, KDDI -0.8%, SoftBank Group -0.2%
  • Insurers rise for a second day; Tokio Marine +2.2%; Sompo Holdings +1.7%
  • Toyo Tire +12% as it works to raise prices in U.S. by as much as 7%, according to JPMorgan
  • ANA Holdings -1.3%; earlier declined as much as 7.2% after saying it will hold press conference on management change, trimmed loss after Nikkei reported Executive VP Yuji Hirako to lead its air carrier unit

For more on Japan markets:
Itochu Completes 37-Megawatt Solar Station in Western Japan
Toshiba Wins Respite in Debt Risk Market on Bank Support Boost
BOJ’s Kuroda Says Low Profitability at Banks Is a Global Problem
Japan Sells Additional 399.6 Billion Yen in Long-Term Debt
As Dollar Stumbles, Yen Offers Best Option for Bulls, AMP Says

— With assistance by Yuko Takeo

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