Japanese Shares Extend Rally to Fourth Day as Bank Stocks Gain

(Bloomberg) -- Japanese shares rose for a fourth day, extending an almost seven-month high, as bank stocks rallied after reporting better-than-expected second-quarter results.

The Topix index finished higher after swinging from a gain of as much as 0.4 percent to a loss of 0.4 percent. Stocks rose even as the yen advanced, following a 1.6 percent loss on Monday. Tokyo equities have climbed to the highest levels since April, outperforming other stock markets in the region on the back of a weaker yen following the outcome of the U.S. election.

“Financial stocks are likely to be bought on the view higher bond yields will be reflected down the road,” said Toshihiko Matsuno, a senior strategist at SMBC Friend Securities Co. “Until we see a clear policy decision, the strong-dollar, weak-yen trend will likely continue, coupled with a weakness in U.S. Treasuries.”

Following the surprise U.S. election win by Republican Donald Trump last week, the dollar has been gaining ground against major peers, as investors anticipated more expansionary policies that will drive U.S. interest rates higher at a greater clip and lure funds away from developing markets. The yen lost 3.3 percent this month through to Monday.

Banks Rise

Japanese banks outperformed the broader market Tuesday, advancing 2 percent, as Mitsubishi UFJ Financial Group Inc. jumped 4.2 percent. The nation’s lenders have been one of the biggest contributors to the Topix’s recent rally amid a global rebound in borrowing costs. The banks reported better-than-expected results after the market closed on Monday, though warned about headwinds ahead. Net income at Mitsubishi UFJ, Japan’s largest lender, fell 6.2 percent, beating estimates.

A four-day rally has propelled banking stocks to their highest levels since the Bank of Japan’s decision in January to adopt negative interest rates. Financial shares have gained globally amid speculation Trump may scrap the Dodd-Frank Act in a bid to loosen up financial regulations, while bond yields soared on near-term U.S. rate increase expectations.

As of Monday, traders were pricing in a 92 percent chance that the Federal Reserve will raise borrowing costs in December, up from 68 percent at the beginning of this month.

Among exporters, makers of electrical appliances, whose shares had been buoyed by a weaker yen, declined, sending a gauge tracking their stocks down 0.2 percent Tuesday. Sony Corp. fell 1.8 percent and Renesas Electronics Corp. lost 2.1 percent. The industry gauge rallied 4.4 percent over the previous six sessions to its highest level since January.

“The odds are for price swings to continue from here,” said Yoshihiro Okumura, general manager at Chibagin Asset Management Co. in Tokyo. “The focus is on how the U.S. economy will move based on what U.S. policies will turn out to be, but this will take time.”

To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@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