Tokyo shares suffer third day of losses on yen rally
Japan’s earnings season gets into full swing this week
TOKYO, July 26, (Agencies): Tokyo shares slumped for a third session Tuesday as a rally in the yen hit exporters ahead of closely watched US and Japanese central bank meetings.
Traders followed their US counterparts in selling equities, with Wall Street retreating from record highs on profit-taking and a drop in crude prices.
While the Federal Reserve, which concludes its meeting Wednesday, is not expected to make any big announcement its statement will be pored over for clues about policy following a run of strong data that have fanned talk of an interest rate rise.
The Bank of Japan, which closes its meeting Friday, is widely considered to be lining up a fresh wave of easing, as the government prepares a promised fiscal stimulus package to kickstart the torpid economy.
Expectations of more Boj easing increased after government officials warned Tuesday it would miss its own growth projections and fail to balance the books by 2020, as planned.
By the close, the benchmark Nikkei 225 index had dropped 1.43 percent, or 237.25 points, to 16,383.04, while the broader Topix index of all first-section shares was down 1.39 percent, or 18.42 points, at 1,306.94.
Exporters were hit as the dollar nosedived to 104.41 yen from 105.82 yen in New York and 106.11 yen in Tokyo earlier Monday.
The yen is seen as a safe haven in times of uncertainty, but a stronger unit dents the outlook for exporters’ profitability.
“A stronger yen and cheaper oil prices are likely to damp investor sentiment,” Toshihiko Matsuno, a senior strategist with SMBC Friend Securities, told Bloomberg News.
Japan’s earnings season gets into full swing this week with Canon, Nintendo, Nissan, Softbank, Sony and Japan Airlines among the firms reporting.
Toyota shed 2.51 percent to 5,699 yen and factory robot maker Fanuc was off 1.30 percent at 17,385 yen.
Financial stocks were also hit, with banking giant Mitsubishi UFJ Financial Group down 2.65 percent at 495.4 yen and rival Sumitomo Mitsui Financial Group falling 1.88 percent to 3,116 yen.
Energy explorer Inpex tanked 3.29 percent to 802 yen and refiner JX Holdings lost 1.78 percent to 385.6 yen as oil prices were hit by supply glut woes.
But Nintendo rose 1.59 percent to 23,590 yen after the previous day’s nearly 18 percent plunge.
The stock dropped in response to a warning that the success of smartphone game Pokemon Go would not translate into bumper profits for the videogame giant.
Mobile giant Softbank climbed 2.99 percent to 5,372 yen after shares of its US wireless carrier Sprint soared on a report of a big jump in monthly subscribers.
Meanwhile, the dollar slipped ahead of the US Federal Reserve’s two-day policy meeting that begins later on Tuesday, while the yen gained despite expectations that the Bank of Japan will ease later this week as investors grow increasingly sceptical about the impact of further stimulus.
Dollar
The dollar shed 0.9 percent against the yen to 104.84, while the euro skidded 1 percent to 115.19 yen.
Tokyo is compiling a spending package worth about 20 trillion yen ($189 billion), government sources told Reuters last week, though actual public spending will be far less than the headline number suggests.
“The Japanese government’s fiscal stimulus appears to be ‘buy the rumour, sell the fact,’” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
“It might not be enough to boost Japanese growth, at least compared to the strong expectations at first,” he said.
A Nikkei report on Tuesday said Japan was likely to inject 6 trillion yen in direct fiscal outlays into the economy over the next few years.
“For the yen, what matters most in our opinion is the ‘mamizu’ or real water content of the fiscal package — more so than the headline total which is easily inflated,” said Ray Attrill, global co-head of FX strategy at National Australia Bank. “The bigger this is, the more stock market supportive it will be and negative for the yen.”
Japanese government projections on Tuesday underscored the pressure on policymakers to revive the economy. Japan will not meet its goal of reaching nominal gross domestic product of 600 trillion yen ($5.7 trillion) in fiscal 2020, and may not achieve it even by fiscal 2024 if growth stays sluggish, the government’s projections showed on Tuesday.
Later this week, most economists surveyed by Reuters expect the Boj to take some form of easing steps at its two-day meeting that ends on Friday.
But some fear the central bank risks triggering a market backlash if it fails to meet investors’ easing expectations.
Sentiment was also subdued by news that 19 people were killed and dozens injured in a knife attack allegedly by a former employee at a facility for the disabled outside of Tokyo. Such mass killings are extremely rare in Japan.
“The initial headlines put pressure on the dollar/yen, because there was no way to know at first that it was not a terrorist attack, similar to those that have taken place in the US and Europe recently,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
Meanwhile, the US central bank is widely expected to stand pat on policy at its meeting that ends on Wednesday, but investors were bracing for any possible signals from the Fed about a tightening later this year.
Fed fund futures on Monday indicated that the market sees nearly no chance of a rate hike this week, but the chances of a December hike rose to 56 percent, up from 48 percent on Friday.
The dollar index, which tracks the greenback against a basket of six major rivals, edged down 0.1 percent to 97.173, below the previous session’s high of 97.569, its loftiest peak since March.
The Australian dollar rose 0.2 percent to $0.7482 as investors awaited inflation data on Wednesday which many believe will send a signal on whether interest rates will be cut as early as next month.
Underlying inflation is expected to fall to a record low of 1.4 percent, a Reuters poll showed, which is seen prompting the Reserve Bank of Australia to trim its cash rate.
The pound slipped 0.2 percent to $1.3118, pressured after a survey
painted a subdued picture of Britain’s manufacturing sector on Monday.
Adding to that pressure was a report in the Financial Times that Bank of England policymaker Martin Weale had dropped his opposition to an easing and now favoured immedi-