TOKYO, June 6: Japan’s Nikkei average fell below 13,000 for the first time in two months on Thursday in a volatile session, extending its slide from a 5-1/2 year high hit last month to the verge of bear-market territory.
By the midday break, the Nikkei eased 0.5 percent to 12,955.71, and has dropped 19 percent since May 23, undermining Japan’s ambitious plans to put the economy on a sustainable growth track.
The index earlier bounced off its day’s low of 12,896.10 and surged as high as 13,238.53 before giving up the gain, underscoring the recent extreme volatility in the market.
The benchmark sank 3.8 percent on Wednesday as investors were disappointed with Prime Minister Shinzo Abe’s growth strategy to revive the world’s third-largest economy.
‘The recent fall in share prices could be seen as the markets urging greater action on growth strategies,’ Nomura Securities wrote in a note.
Should the Nikkei fall to 12,754, or 20 percent from the 5-1/2 year high reached on May 23, it would enter a bear market and could pose a serious threat to Abe’s plan to boost consumer confidence and pull Japan out of deflation.
The market has had a torrid time over the past two weeks, with trading characterized by violent price moves and huge drops, as investors were spooked by worries over slowing growth in China, and uncertainty over whether the U.S. Federal Reserve would roll back its stimulus this year.
The Nikkei’s 30-day implied volatility rose to 38.6 percent on Wednesday to its highest since the March 2011 earthquake and tsunami, according to Thomson Reuters Datastream.
A senior dealer at a foreign bank said the 12,800-mark is an important level for many investors, who came into the market around that area after the Bank of Japan announced its sweeping stimulus measures on April 4 that jolted global markets.
‘The market very clearly got ahead of itself. It was a long way ahead of its (moving) averages. It was very crowded. There was a lot of extremely large positioning among global macro funds and some of the domestic dealing desks as well,’ he said.
Still, the trader remained bullish as the policies that sparked the rally had not been changed and expects the Nikkei to hit 17,000 by year-end.
Toyota Motor Corp, which has benefited from the yen weakness, remained under pressure, down 1.8 percent and was the second-most traded stock on the main board by turnover, while Sony Corp, also heavily traded, shed 2.4 percent.
The selloff in equities has weighed on the dollar against the yen. The Japanese currency was last traded at 99.22 to the greenback, up from a 4-1/2 year low of 103.74 hit on May 22.
Despite the recent selloff, the benchmark Nikkei is up 4.8 percent since the BOJ’s launch of its radical monetary expansion campaign in April and has risen 24.6 percent so far this year.
CDS INDEX AS GAUGE
But UK-based Christopher Street Capital said the widening in credit default swap iTraxx Japan index had slowed, suggesting the credit market was stabilising faster than the stocks market, which could encourage those who are looking to buy the equity correction.
‘We are encouraged by the iTraxx Japan holding below 100 basis points and see 12,700-13,000 on the Nikkei as a good launch pad for a new rally,’ the brokerage wrote in a note.
The broader Topix index lost 1 percent to 1,079.39 on Thursday morning, with volume at 54 percent of its full daily average for the past 90 trading days.
Tokyo Electric Power Co, the most traded on the main board, sagged 8.6 percent, extending the previous session’s 16.3 percent slide after the operator of crippled the Fukushima Daiichi nuclear plant reported more radioactive water leak at the site. (agencies)
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