Nikkei slumps over 5pc on firm yen

The Pak Banker - - MARKETS/SPORTS -

Ja­pan's Nikkei share av­er­age fell more than 5% to a fresh 16-month low on Fri­day, and was set for its big­gest weekly drop since 2008 as in­vestors rushed to dump risky as­sets af­ter the dol­lar dived to a 15-month low against the yen.

The Nikkei fell as much as 5.4% to 14,865.77 in morn­ing trade, a level un­seen since Oc­to­ber, 2014. For the week, the Nikkei has fallen 12%, head­ing for the big­gest weekly drop since Oc­to­ber, 2008.

Ja­panese mar­kets were closed for a pub­lic hol­i­day on Thurs­day, when the dol­lar fell as low as ¥110.985, its low­est level since Oc­to­ber 2014 as fears of a global eco­nomic slow­down and con­cerns about stress in the bank­ing sys­tem in­creased de­mand for safe havens. It last stood at ¥112.24.

Traders said that in­vestors feared Ja­panese ex­porters hopes of earn­ings growth will suf­fer if the yen strength­ens fur­ther. Au­tomak­ers were ham­mered, with Toy­ota Mo­tor Corp fall­ing 6.5%, Honda Mo­tor Co. drop­ping 4.8%. Ac­cord­ing to an­a­lysts at No­mura Se­cu­ri­ties, when the dol­lar falls by ¥1, it cuts Ja­pan Inc's pre­tax earn­ings by 0.40.5% and pushes down the Nikkei share av­er­age by ¥400.

Masaru Ha­masaki, head of mar­ket and in­vest­ment in­for­ma­tion depart­ment at Amundi Ja­pan, said the Nikkei could stay below the 15,000-line for the time be­ing, with more po­ten­tial seen on the down­side.

Ja­panese stocks' steep drop fol­lowed the Bank of Ja­pan's (BoJ) de­ci­sion to adopt neg­a­tive in­ter­est rates late last month, but the yen has gained as in­vestors dumped riskier as­sets and look for safe havens amid the mar­ket tur­moil.

Fed­eral Re­serve chair Janet Yellen did lit­tle to help the dol­lar in her se­cond day of tes­ti­mony be­fore US law­mak­ers. While she said she still ex­pects the Fed to grad­u­ally hike in­ter­est rates this year, she re­it­er­ated that pol­i­cy­mak­ers were not on a "pre-set" path to re­turn pol­icy to "nor­mal" given a wors­en­ing melt­down in global stock mar­kets. The dol­lar's overnight jump led to spec­u­la­tion that Ja­panese au­thor­i­ties were check­ing cur­rency rates, a step that of­ten pre­cedes in­ter­ven­tion. A govern­ment of­fi­cial de­clined to com­ment on in­ter­ven­tion on Fri­day.

"As long as there is spec­u­la­tion about in­ter­ven­tion, spec­u­la­tors may test whether the BoJ may ac­tu­ally act, so we are brac­ing for an­other sell-off in stocks," said Nori­hiro Fu­jito, a se­nior in­vest­ment strate­gist at Mit­subishi UFJ Mor­gan Stan­ley Se­cu­ri­ties. "If the BoJ acts, it may serve as a short-term 'painkiller' but the ef­fect will likely be short-lived." All of the Topix's 33 sub­sec­tors fell, with se­cu­ri­ties firms un­der­per­form­ing. No­mura Hold­ings lost 8.3% and Daiwa Se­cu­ri­ties Group 7.4.

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