TOKYO, June 7: The Nikkei share average entered bear market territory on Friday, having plunged 20 percent from a 5-1/2 year high hit last month, while Japanese government bonds gained as investors sought safety.
Japanese equities have tumbled over the past two weeks, with trading characterised by violent price moves, as investors were spooked by worries over slowing growth in China, and uncertainty over whether the US Federal Reserve would roll back its stimulus this year.
Investors have also been disappointed with Prime Minister Shinzo Abe’s growth strategy this week to revive the world’s third-largest economy.
The sell-off has wiped off about $500 billion in market capitalisation from the Nikkei, based on the benchmark’s May 22 close.
‘Recent weakness in the market represents a little bit of a disappointment for ‘Abenomics’,’ said Kenji Shiomura, an analyst at Daiwa Securities.
‘The market has questioned his ability to work with his own party to draw out a concrete growth strategy. But it would be too extreme to say that hopes for Abenomics have faded completely because the biggest impact Abenomics gave the market was monetary easing, and it is still continuing,’ he said.
‘We will need to see the outcome of the US jobs data (later on Friday), but now that most of bad domestic factors are out, the timing to buy back Japanese stocks is nearing.’
The Nikkei fell 1.3 percent to 12,732.59 points by late morning on Friday as the yen firmed, after trading as low as 12,660.08, down 20.6 percent from the multi-year peak hit on May 23.
The Japanese currency gained 1.9 percent against the dollar overnight, climbing to a near two-month high as investors cut back their bullish bets on the greenback on concerns that the U.S. Jobs report will disappoint.
The yen had fallen nearly 30 percent against the dollar to a 4-1/2 year low of 103.74 on May 22 since mid-November, when Abe promised expansionary fiscal and monetary policies to lift the economy out of doldrums. It was last traded at 96.49 to the US currency on Friday.
The yen’s sharp decline and optimism over Abe’s reflationary policies had fueled an 80 percent rally in the Nikkei since late last year, leaving it vulnerable to profit-taking.
YEN STRENGTH WEIGHS
Currency-sensitive exporters, which have been buoyed by the yen weakness, took a battering on Friday, with Toyota Motor Corp , Honda Motor Co, Toshiba Corp and Panasonic Corp off between 3.2 and 5.2 percent.
The transport equipment sector, home to Toyota, Nissan Motor Co and auto parts makers, has fallen more than 20 percent from a near 5-year high touched on May 23, joining a number of other sectors, such as securities, banks and real estate firms, in bear market territory.
But Tetsuro Ii, the chief executive of Commons Asset Management, said he was bullish on Japanese equities because company fundamentals were improving on the back of soft yen.
‘The recent rise in the yen is not that startling given what companies are expecting this year,’ he said, adding that most exporters have based their foreign exchange assumptions at 90 to 95 yen to the dollar for the financial year ending March 2014.
Despite the recent rout, the Nikkei is still up 3 percent since the Bank of Japan’s announcement of its radical monetary expansion campaign on April 4 and has risen 23 percent so far this year.
The broader Topix index lost 2.2 percent to 1,046.96 on Friday morning, with volume at 49 percent of its full daily average for the past 90 trading days.
JGB YIELDS DOWN
Japanese government bonds, however, were in demand, with the 10-year yield down 3.5 basis points to 0.80 percent to a one-week low.
With the 10-year yield mostly stuck in 0.80-0.90 percent range in the past few weeks, there is a growing sense that JGBs, which had been battered after the BOJ announcement, are finally regaining some stability.
Ten-year JGB futures added 0.47 point to 143.49 after hitting a four-week high at 143.50.
‘The Nikkei seems to be vulnerable … But apart from that we need to carefully assess the U.S. Economic status,’ said Maki Shimizu, senior JGB strategist at Citigroup in Tokyo.
‘Over the long-term, the Fed policy and US Treasury yields will have bigger impact on the markets in terms of setting the direction.’
(AGENCIES)
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