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Tokyo Traders End Wild Week With Shift to Post-Election Caution

Tokyo Traders End Wild Week With Shift to Post-Election Caution

(Bloomberg) -- After two days of extreme swings in Japanese stocks as investors tried to gauge the impact of a Donald Trump presidency, traders stepped back in the face of too many uncertainties.

Investors signaled a reluctance to hold positions into the weekend, with the Topix index paring an early rally after the wildest two-day swing since Brexit. Japan shares plunged the most since June on Wednesday, as it became clear Trump would become the next U.S. president. Equities then rallied back the next day, with the biggest gains since February, amid optimism that Trump’s policies would boost the world’s largest economy.

SecurityPercent ChangePrice
Topix+0.1%1,378.28
Nikkei 225+0.2%17,374.79
Yen-Dollar+0.3%106.54

“Japanese stocks rose to their highest level since April in the morning, and we saw profit taking before heading into the weekend,” said Masayuki Otani, chief market strategist at Securities Japan Inc. in Tokyo. “There might be more references to Japan-related policies from Mr. Trump over the weekend, and it was easier for investors to take profit.”

The Topix started the day by extending Thursday’s rally, climbing as much as 1.6 percent, led by a surge in financial shares as investors reacted to a rise in U.S. bond yields. The benchmark gauge then pared gains during late morning as emerging markets shares extended declines.

“The rise so far has been very quick,” said Yoshihiro Okumura, general manager at Chibagin Asset Management Co. “After the gains in early morning trading, investors are taking a more wait-and-see stance.”

The pullback came after shares surged on Thursday on the perceived positives of a Trump presidency. Some traders had bet that the president-elect will lower taxes, ease corporate regulation and ramp up spending to spur economic growth.

“While the market over-played its concerns when it sank, the rise we saw afterwards cherry-picked positive factors in excess,” said Tomoichiro Kubota, a senior analyst at Matsui Securities Co. in Tokyo. “Until we see that his policies are actually this, this and this, and the contents are actually solid, it’s very dangerous to have a large position in either direction.”

The uncertainty isn’t restricted to Trump’s policies. Andrew Clarke, the director of trading at Mirabaud Asia Ltd. in Hong Kong, says investors have become too complacent. A veteran trader, he says his clients are ignoring the risk of civil unrest in the U.S. after Trump won the presidency.

“I would not be long for a trade going into the weekend,” Clarke said. “Emotions are extremely high.”

The Topix posted a 2.3 percent advance this week, the most since the period ended Sept. 23. Trading on the Nikkei 225 Stock Average was more than double the 30-day average on Friday, with volume heavy throughout the week. The down-up swing in the Japanese benchmark gauge following the U.S. election results was among the six largest over the past quarter of a century, according to data compiled by Bloomberg. Past cases of extreme market whipsawing happened after Brexit, Japan’s Great Earthquake of 2011 and the financial crisis in 2008.

Financial shares gained in Tokyo Friday, with lenders, brokerages and life insurers climbing on expectations that a Trump presidency will continue to push up bond yields, while financial regulations may be eased. A gauge of bank shares on the Topix rose to its highest level since around the time the Bank of Japan introduced a negative interest rate policy in January.

Those expectations provided relief for Japanese bank shares, which have tumbled this year after the BOJ’s introduction of negative rates. All three Japanese megabanks rose. Mitsubishi UFJ Financial Group Inc. soared 9 percent, capping its biggest two-day gain since 2009. Sumitomo Mitsui Financial Group Inc. rallied 4.1 percent, while Nomura Holdings Inc. climbed 5.1 percent.

Tokyo Traders End Wild Week With Shift to Post-Election Caution

“In the short-term, we’ll probably continue to see moves that see tax cuts and an expansion in infrastructure investment as positive,” Yutaka Takahashi, a Tokyo-based market analyst at Kyokuto Securities Inc., said. “That said, opposition to Mr. Trump is also very strong, so there are those who want to actually see his various policies in the medium term.”

--With assistance from Toshiro Hasegawa and Reinie Booysen To contact the reporters on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net, Hideki Sagiike in Tokyo at hsagiike@bloomberg.net. To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, Andreea Papuc