Japan Shares Post Worst Week Since July as Yen Gains on Election

(Bloomberg) -- Japanese shares dropped, with the benchmark Topix index capping its worst week since July, as escalating jitters over the outcome of the 58th U.S. presidential election next week pushed the yen higher.

The Topix fell in Tokyo on Friday after a holiday, with the measure losing 3.3 percent this week. The Japanese currency rose against the dollar for a third day on Thursday, while the S&P 500 Index slid for an eighth day in its longest streak of losses since the global financial crisis, as fresh polls put Democrat Hillary Clinton only slightly ahead of Republican Donald Trump.

“This uncertainty will keep investors from making a move as they watch and see what happens,” said Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo. “It could be Trump and even if it’s Clinton, we don’t know if policies will be managed smoothly amid the FBI investigation.”

The election tumult has broken a period of calm in Japanese market, with the Nikkei Stock Average Volatility Index surging 41 percent this week for its biggest such jump since January. The jolt comes after the volatility gauge slid to its lowest since August 2015 last Friday.

The benchmark stock gauge is resuming declines after closing at a six-month high earlier this week, as demand rises for the yen as a haven asset. The Topix is down 13 percent this year, making Japan the worst-performing developed Asian market. Tokyo equity markets were closed Thursday for the Culture Day national holiday.

Car and electrical-appliance makers weighed most heavily on the Topix on Friday, with Toyota Motor Corp. losing 4 percent. Mazda Motor Corp. tumbled 5.1 percent, its biggest daily decline since July, after the company cut its full-year profit forecast by 13 percent, citing strength in the yen.

Takata Corp. slumped as much as 9 percent before paring its drop to 1.8 percent. Trading was halted earlier in the session after the Nikkei newspaper reported that the troubled air-bag maker is preparing a possible Chapter 11 filing for its U.S. unit, TK Holdings. Takata spokesman Toyohiro Hishikawa said nothing has been decided.

Banks also retreated. Mitsubishi UFJ Financial Group Inc., the nation’s largest lender, fell 2.8 percent, while Sumitomo Mitsui Financial Group Inc. lost 1.5 percent. Shinsei Bank Ltd. slipped 1.2 percent after reporting a 33 percent decline in profit for the six months ended September.

Attention has shifted away from central banks after the Federal Reserve kept its policy rate unchanged but signaled the likelihood of a December increase, saying the case for higher borrowing costs strengthened amid accelerating inflation. The Bank of Japan also stood pat earlier this week, while pushing back the timing for its 2 percent inflation target in a largely anticipated move.

Earnings Season

More than 130 Topix companies were scheduled to report earnings Friday. Of the firms that have already posted results this season and for which Bloomberg has estimates, about two-thirds missed projections for sales while about half fell short of predictions for profit.

“Earnings results aren’t particularly impressive,” said Mamoru Shimode, chief equity strategist at Resona Bank Ltd. “Both the Japanese and global economy are in recovery, but we aren’t seeing that yet in corporate profits.”

Futures on the S&P 500 added 0.1 percent after the underlying equity gauge dropped 0.4 percent on Thursday to close at the lowest since July. A New York Times/CBS poll found Clinton with a 45 percent chance of winning and Trump 42 percent, tighter than her nine-point lead in the same poll in mid-October.

“At least it won’t be a huge minus should Clinton win the election,” Shimode said. “We could go back to where we were before this week’s drop, with the global economy in moderate recovery leading to higher U.S. rates, supporting the case for a weaker yen and making the environment favorable for buying Japanese stocks.”

To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net, Nao Sano in Tokyo at nsano3@bloomberg.net. To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, Tom Redmond