By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — Japanese stocks suffered deep losses Monday on the yen’s strength and further profit-taking after concerns about a rise in bond-market volatility helped stoke extreme swings late last week.
The Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK +1.16% tumbled 3.2% to 14,142.65, falling significantly more than the 0.9% it picked up after Friday’s roller-coaster ride. The broader Topix /zigman2/quotes/210597971/delayed JP:NIK +1.16% plummeted 3.4% to 1,154.07.
Still, both benchmarks had recovered from lows earlier in the day, when the Nikkei Average sank as much as 4%.
“The sharp rise in Japanese equities this year has been matched by the pace of the fall in recent days, with the relative strength of the yen again having a dramatic impact on the performance of Japanese exporters,” said Tim Waterer, a senior trader at CMC Markets. “The Nikkei will likely remain under pressure in the short term with offshore investors pulling funds amid the current yen unpredictability,” he added.
Exporters paced the losses in Tokyo as the U.S. dollar /zigman2/quotes/210561789/realtime/sampled USDJPY -0.8692% dipped below ¥101 a few times through the day, raising worries about the impact on competitiveness and repatriated earnings from a stronger local currency.
Sony Corp. /zigman2/quotes/201361720/delayed JP:6758 +0.80% lost 6.3%, Sharp Corp. /zigman2/quotes/203224600/delayed JP:6753 +1.95% /zigman2/quotes/200401218/composite SHCAY +1.17% fell 5.3%, Fuji Heavy Industries Ltd. /zigman2/quotes/203522406/delayed JP:7270 -1.53% /zigman2/quotes/200526066/composite FUJHY +4.03% tumbled 7.6% and Toyota Motor Corp. /zigman2/quotes/203803129/delayed JP:7203 -0.37% /zigman2/quotes/200537742/composite TM +1.57% skidded 5%.
“Many of the foreign investors who have poured almost $80 billion into Japanese equities this year have hedged the currency risk by selling the yen. However, given the slide in Japanese share prices, they may be over-hedged. To reduce the hedge, yen needs to be bought,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
Concerns surrounding bond-market volatility weighed on banks and insurance firms, which hold substantial amounts of Japanese government bonds (JGBs).
Mizuho Financial Group Inc. /zigman2/quotes/204507985/delayed JP:8411 -1.66% /zigman2/quotes/200950467/composite MFG 0.00% slumped 2.9% and Mitsubishi UFJ Financial Group Inc. /zigman2/quotes/207520099/delayed JP:8306 -0.53% declined 4.3%, while Dai-ichi Life Insurance Co. /zigman2/quotes/208507587/delayed JP:8750 -2.36% /zigman2/quotes/200865545/composite DCNSF +0.12% slid 6.1%.
The drop came even as the yield on the benchmark 10-year JGB dropped 3 basis points in Monday’s trade to 0.83%, according to FactSet data.
Bank of Japan Gov. Haruhiko Kuroda was reported as saying over the weekend that moves in the asset markets don’t reflect excessively bullish expectations.
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Elsewhere in Asia, Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO +0.76% shed 0.5%, while Taiwan’s Taiex climbed 0.9% and South Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 +0.30% rose 0.3%.
Meanwhile, Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI +1.43% ended the day 0.3% higher, while the Shanghai Composite /zigman2/quotes/206600939/delayed CN:000001 +1.00% added 0.2%.
The losses in Sydney came as high dividend-yielding stocks, such as banks, suffered further selling amid the Australian dollar’s weakness against the U.S. currency.
A weakening Australian dollar /zigman2/quotes/210560947/realtime/sampled AUDUSD +0.2209% makes the relatively high dividends paid by local firms less attractive to foreign investors.
“If the [Australian] dollar does fall back to 90 [U.S.] cents, as it appears to be, international clients will start to lose out on the differentials. ... Losing out in the currency pairs would see the shine in the trade tarnished,” said IG Markets strategist Evan Lucas.
Shares of Commonwealth Bank of Australia /zigman2/quotes/200638713/delayed AU:CBA +0.32% /zigman2/quotes/207018701/composite CBAUF +4.06% gave up 0.8%, Bank of Queensland Ltd. /zigman2/quotes/205781039/delayed AU:BOQ +0.84% /zigman2/quotes/202174192/composite BKQNF 0.00% lost 1.3% and gaming major Tatts Group Ltd. dropped 1.2%.
Miners also weakened amid lingering worries over China’s economic growth. Iron-ore producer Fortescue Metals Group Ltd. /zigman2/quotes/202351558/delayed AU:FMG +2.73% /zigman2/quotes/204116626/composite FSUMF +4.03% skidded 3.1%, and diversified miner Rio Tinto Ltd. /zigman2/quotes/200083756/delayed AU:RIO +3.53% /zigman2/quotes/202627887/composite RIO +1.15% lost 2.6%.
Stock in some South Korean exporters rose, meanwhile, amid expectations that a strengthened yen would improve their competitiveness at the cost of their Japanese rivals.
Kia Motors Corp. /zigman2/quotes/206019389/delayed KR:000270 0.00% /zigman2/quotes/205439169/composite KIMTF 0.00% gained 1.2%, and Hyundai Motor Co. /zigman2/quotes/206684590/delayed KR:005380 +0.89% /zigman2/quotes/204364212/composite HYMTF +2.80% added 1.5%.