Nikkei enters bear market as stocks dive 6.35%

TOKYO —

The Nikkei stock index plunged into a bear market on Thursday as a strong yen and worries about an end to central bank stimulus stoked bloodletting on Japan’s premier bourse after weeks of wild volatility.

The benchmark Nikkei dived 6.35%, or 843.94 points, to 12,445.38 by the close, slicing about 20% off its peak last month above 15,600, and meeting the typical definition of a bear market.

The broader Topix index of all first-section shares fell 4.78%, or 52.37 points, to 1,044.17.

Thursday’s drop was largely attributed to jitters over an end to central bank stimulus, particularly the U.S. Federal Reserve’s massive monetary easing, which has been credited with propping up global equity markets.

However, cracks have also begun to emerge in a plan by Japanese Prime Minister Shinzo Abe to power the world’s third-largest economy, a blueprint dubbed Abenomics.

Last week, investors turned up their noses at what some saw as a half-hearted bid to force structural reforms in the long tepid economy, the so-called “third arrow” of Abe’s plan.

Foreign investors had piled into the market since late last year as the government and Bank of Japan set about a policy prescription of big spending and aggressive monetary easing, which pushed down the yen.

The weak currency benefits Japanese exporters by making them more competitive overseas and tends to push up Tokyo stocks.

However, the dollar has plunged on the yen in recent days with the U.S. Federal Reserve in focus ahead of a policy meeting next week that many fear will herald the end of its $85 billion-a-month bond-buying.

“We have seen such wild fluctuations lately that few investors want to press on with buying,” said Hirokazu Kabeya, senior strategist at Daiwa Securities.

“It’s a kind of a chicken-and-egg situation—volatile markets keep buyers away and the absence of buyers leads to market volatility. We are trapped in a negative spiral right now.”

Investors tend to flock to the safe-haven yen in times of turmoil and uncertainty, weighing on the stock market.

“The Nikkei falls because the dollar/yen falls, then the dollar/yen falls further because the Nikkei has fallen—markets are in this vicious circle,” said Atsushi Hirano, head of FX sales Japan at Royal Bank of Scotland.

The greenback fetched 94.03 yen in Tokyo afternoon trade, from 95.88 yen in New York late Wednesday and from the high 98-yen range in Tokyo at the start of the week. It was above 100 yen in recent weeks.

That puts the dollar-yen rate back to levels seen when the Bank of Japan announced in April it would unleash a torrent of easy money as part of a plan to reverse years of falling prices and tepid growth.

“A clear breach of 95 yen will open the pair’s downside to 92 yen,” Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo, told Dow Jones Newswires earlier in the day.

“This sense of uncertainty could persist until next week’s FOMC meeting,” he added, referring to the upcoming gathering of the policy-making Federal Reserve Open Market Committee.

A senior trader at a major Japanese bank said further losses in the Nikkei would be a negative signal from investors on the Japanese premier’s economic policies.



Japan Today