Japan’s Nikkei drops 1% as BOJ capitulation betting pushes up yen

Kevin Buckland

TOKYO (16 Jan 2016) – Japan’s Nikkei shares fell 1% Monday as exporters felt the pinch of a stronger yen. Investors bet that the Bank of Japan might have to adjust stimulus settings once more this week.

After plunging through the psychological 26K line and falling to as low at 25,748.10 on Jan. 6, the Nikkei dropped 1.01% to 25,855.38 by the midday break.

The wider Topix lost 0.56% to 1,892.33.

The yen hit its highest level since May at 127.215 USD. Speculators have increased their bets that the BOJ’s yield-curve controls are becoming less effective in light of rising inflation.

After shocking the markets last month with a double band of what it allows the 10-year Japanese bond yield to move around zero, the central bank now sets policy on Wednesday.

The benchmark yield reached 0.51% on Monday, surpassing the target for a second consecutive day.

Yunosuke Ikeda (chief equity strategist at Nomura) stated that “We tend to believe that the market reactions were a bit excessive.”

“Buying of banks and selling Nikkei225 Futures was based in rapid normalization of policy by the BOJ. It is unlikely that this will happen.”

Ikeda anticipates some reversal in recent moves following Wednesday’s BOJ decision and projects the Nikkei at 26,500 by March 31st.

Investors already took money out of bank stocks on Monday, following the five-year record setting last week. The Tokyo Stock Exchange’s 33 industries suffered the worst performance, with banking losing 2.05%.

Automobile manufacturers were weak. Nissan fell 1.74%, and Suzuki dropped 2.34%.

Fast Retailing, Uniqlo’s store operator, fell by 1.88%

Nintendo bounced 0.5% but fell to a near one-year low at the beginning of the session.

After reducing earnings forecasts, chemical company Denka plunged 15.89%.

CyberAgent, an internet-based company, saw its share of revenue rise 1.61% after Babel Label, a subsidiary of Netflix, entered into a strategic partnership.

After it announced that it had submitted an application for marketing authorization in Japan for its Alzheimer’s medication lecanemab to drugmaker Eisai, 1.57% was added by the company. (Editing by Uttaresh.V