Tokyo stocks in sharp sell-off

The Nikkei benchmark has tumbled 3.6pc, in its largest daily loss since February 12.

The Bank of Japan surprised investors on Thursday when it held back from further stimulus, triggering a sharp sell-off in stocks.

Japan’s Nikkei Stock Average ended down 3.6 per cent — the largest daily percentage loss since February 12.

Trading elsewhere in Asia was choppy. Korea’s Kospi lost 0.7 per cent, in China, the Shanghai Composite Index closed down 0.3 per cent. Hong Kong’s Hang Seng index was recently up 0.1 per cent.

The Bank of Japan left its easing program alone, keeping the deposit rate at minus 0.1 per cent and its asset purchases at 80 trillion yen each year. It also pushed back the forecast date for hitting its 2 per cent inflation target. Expectations had been growing for further easing.

“The stock market was disappointed about the BOJ decision, and now Japanese stock prices are going down,” said Shingo Ide, chief equity strategist for the NLI Research Institute, a think tank in Tokyo. “The stock market will search the bottom level of their price today.”

Japanese financial authorities likely want to examine the effects of the negative interest rate policy, adopted earlier this year, and keep its easing cards for possible future use, said Hideyuki Ishiguro, senior strategist at Daiwa Securities.

Overnight, the Federal Reserve kept US interest rates pat and gave an ambiguous outlook on whether it might act in June. The Fed’s signal that it was in no rush to raise rates relieved investors, who sent US stocks slightly higher on Wednesday.

The Bank of Japan’s decision “took the steam out of overheating expectations,” Mr Ishiguro said. BOJ officials “might have been ready to act if the Federal Open Market Committee outcome overnight had pointed to a June rate increase, New York stocks had fallen sharply and other global markets had destabilised.”

Japanese bank shares took a huge hit, as the Topix banking index sank 6.3 per cent. Shinsei Bank Ltd. and Mitsubishi UFJ Financial Group Inc. each fell 6 per cent. Nomura shares plunged 10 per cent following weak earnings results.

Japanese stocks were also falling after data in the morning showed that consumer prices fell 0.3 per cent in March from a year earlier, the first drop in five months.

During Thursday’s session, the yen strengthened more than 2 per cent to recently trade at 108.61 per US dollar. That means the yen is 10 per cent stronger than its level on January 29, when the Bank of Japan startled markets and introduced negative interest rates for the first time.

The yen’s strength in recent months has fuelled concerns that Japan’s largest manufacturers will be more likely to miss earnings targets. A weaker currency helps Japanese exporters sell their goods at more competitive prices abroad. Sharp gains in the yen could force Japan’s central bank to ease monetary policy.

“We still think the BOJ will go ahead with further easing at some point, probably at the July meeting,” said Michael Moen, a fixed income Asia investment manager for Aberdeen Asset Management. “Not enough time has really passed for them to assess the impact of the negative interest rate policy on the broader economy at this time.”

In China, metal and steel shares fell. Commodities exchanges have increased transaction fees and margin requirements several times this week to curb speculative money flows into commodities futures contracts.

The price of Brent crude oil was recently trading down 0.7 per cent at $US46.83 per barrel.

The price of gold was down 0.8 per cent at $US1,240 per troy ounce.

Dow Jones newswires