By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — Japanese shares ended modestly higher Friday after a roller-coaster ride that subjected the Nikkei Stock Average to a swing of more than 3% on both sides of the previous day’s close.
Other regional markets ended mixed after also charting a choppy course, with Australian stocks tumbling as banks and resource stocks skidded amid concerns about the outlook for the local and Chinese economies.
The Nikkei /zigman2/quotes/210597971/delayed JP:NIK -3.67% finished the day 0.9% higher in Tokyo, a day after it plunged 7.3% for its worst drop since a disastrous earthquake and tsunami struck the country in March 2011.
After opening solidly higher, the benchmark slumped in afternoon trading on a wave of selling, as remarks from the governor of the Bank of Japan failed to ease concerns about a rise in government-bond yields. The drop coincided with a steep rise in the yen after BOJ Gov. Haruhiko Kuroda said stability in the country’s debt markets was “extremely desirable.”
“He is trying to make money cheaper, but [the] Japanese government bond yield is going the other way, and he hasn’t said how he’s going to stabilize bond-market yield. ... That’s worrying the market,” said Kim Eng Securities director of sales trading Andrew Sullivan.
The Nikkei’s slump on Thursday had came against the backdrop of extreme volatility in the bond market, which forced the Bank of Japan to step in and offer funds to soothe investor nerves. The yield on the 10-year Japanese government bond (JGB) yield rose to 1% Thursday before recovering, even as the Bank of Japan last month announced plans to buy JGBs on an unprecedented scale — a move intended to lower yields and borrowing costs.
On Friday afternoon, the 10-year yield was at 0.835%.
However, some analysts said the bond market was functioning properly, despite worries about yields.
“We see the robust stock rally, weaker-yen trend and emerging sentiment that a 2% inflation rate within two years looks somewhat achievable as the sources of the recent yield upswing... we reject the view that the market is not functioning property,” Royal Bank of Scotland economists led by Junko Nishioka wrote in a note to clients.
They estimated that the 10-year JGB yield will move in a core range of 0.65% to 0.95% over the next six months, “with the yield trading in the upper half of this range until market volatility drops, and in the lower half once the market has settled down.”
Kim Eng’s Sullivan, meanwhile, said the severe market reaction Friday reflected investors’ unwillingness to take risks ahead of the weekend, with some key economic data due later on Friday from the U.S. and Europe.
The U.S. was slated to release numbers on monthly durable goods orders later on Friday. Germany was set to issue the result of its monthly Ifo index on business confidence.
Contributing to the stock market’s volatility, the U.S. dollar /zigman2/quotes/210561789/realtime/sampled USDJPY -1.3670% traded in a wide range, plunging as low as ¥101.05 after rising to ¥102.58 earlier in the day.
Among the major stock movers Friday, shares of Sharp Corp. /zigman2/quotes/203224600/delayed JP:6753 -5.05% /zigman2/quotes/200401218/delayed SHCAY +1.72% climbed 8.2%, Tokyo Electric Power Co. /zigman2/quotes/202771076/delayed JP:9501 -3.07% /zigman2/quotes/205839055/delayed TKECY -12.25% jumped 9.9% and Shinsei Bank Ltd. /zigman2/quotes/210166295/delayed JP:8303 -4.20% /zigman2/quotes/209928917/delayed SKLKF -3.58% rose 6.5%.
On the downside, Renesas Electronics Corp. /zigman2/quotes/203872935/delayed JP:6723 -7.00% /zigman2/quotes/201351352/delayed RNECY -3.37% dropped 2.5%, Sumitomo Mitsui Financial Group Inc. /zigman2/quotes/203656770/delayed JP:8316 -1.33% /zigman2/quotes/206471416/composite SMFG +1.43% shed 2.1% and Japan Real Estate Investment Corp. /zigman2/quotes/202728746/delayed JP:8952 -4.79% retreated 4%.