Japan Markets Shaken as Investors Seek Shelter
February 09 2016 - 1:40AM
Dow Jones News
TOKYO— Japanese stocks fell more than 5% and the yield on the
benchmark government bond dropped into negative territory for the
first time, twin signs of a flight to safety that threatened to
undermine the nation's slow recovery under Prime Minister Shinzo
Abe.
In afternoon trading, the benchmark 10-year government bond was
yielding minus 0.005%, meaning investors were willing to lend the
Japanese government money for 10 years and get back less than they
put in.
It was the most dramatic consequence yet of the Bank of Japan's
decision late last month to introduce negative interest on certain
funds that commercial banks deposit at the central bank. The
decision has pushed down yields for both short- and longer-term
bonds.
"I think investors will likely test how far the yield can go
down," said Daiwa Securities strategist Yukio Ishizuki. He cited
speculation that the Bank of Japan would push interest rates
further into negative territory, a step BOJ Governor Haruhiko
Kuroda has said he is prepared to take.
Meanwhile, the benchmark Nikkei Stock Average fell more than 5%,
sparked by fears of a global economic slowdown. And the Japanese
yen, which is often seen by investors as a haven in times of
turmoil, rose against the U.S. dollar. One dollar bought about
114.50 yen in afternoon trading in Tokyo, compared with more than ¥
120 just after the BOJ's negative-rate move last month.
Financial stocks were especially hard-hit because of concerns
about global financial stability. Japan's largest bank, Mitsubishi
UFJ Financial Group Inc., lost more than 9%, and its largest
brokerage, Nomura Holdings Inc., was down nearly 10%.
Hitoshi Ishiyama, chief strategist at Sumitomo Mitsui Asset
Management, said the U.S. Federal Reserve's rate increase in
December was still rippling through markets and creating fears
about tighter money, which drove down crude-oil prices.
"Slower demand and oversupply alone don't explain those
tumbles," Mr. Ishiyama said. Crude prices "are taking a hit from a
major shift in monetary policy."
Low interest rates could help Japan's economy by making it
easier for businesses and the government to borrow. Japan's
enormous government debt, at more than 200% of gross domestic
product, hasn't deterred investors from piling into government
bonds.
But for the moment, the negative consequences of the market
upheaval predominate. Until recently, the weak yen has powered
Japanese corporate profits, in part by making the dollars they earn
overseas worth more in yen. Now profits are likely to shrink, and
the weak stock market may deter companies from giving employees
raises during wage negotiations that are getting under way this
month.
The government said on Monday that real wages declined 0.9% in
2015, the fourth straight year of decline. Shrinking wages have
kept consumers cautious and prevented the virtuous cycle that Mr.
Abe has sought to get the economy out of its two-decade-long
sluggishness.
Next week, Japan is set to announce its gross domestic product
figures for the October to December quarter. The median forecast of
economists surveyed by The Wall Street Journal is for contraction
of 1.2%, which would be the second contraction in three
quarters.
The Bank of Japan might ease further if the yen continues to
strengthen, according to Norinchukin Research Institute Chief
Economist Takeshi Minami. Still, he said recent global market
turbulence has been driven by anxiety over the world's economic
prospects, meaning that action by a single central bank would
likely have only a fleeting impact. Also, the U.S. wouldn't
necessarily welcome a move from Japan to intentionally weaken the
yen, he said.
Finance Minister Taro Aso expressed concern about the stronger
yen, calling the rapid currency movements "rough."
Hiroyuki Kachi, Takashi Nakamichi and Kosaku Narioka contributed
to this article.
Write to Peter Landers at peter.landers@wsj.com
(END) Dow Jones Newswires
February 09, 2016 01:25 ET (06:25 GMT)
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