Topix Slips From Two-Year High as Yen Gains on Brainard Remarks

(Bloomberg) -- Shares in Tokyo retreated as the yen jumped after Federal Reserve Governor Lael Brainard sounded a note of caution over further U.S. interest-rate increases.

Banks contributed most to the Topix index’s drop as the benchmark gauge retreated from its highest level since August 2015 reached on Tuesday. The yen extended gains against the dollar in Tokyo trading after rising 0.1 percent in New York. Brainard’s dovish comments -- even while signaling comfort on pressing ahead soon with plans to shrink the Fed’s balance sheet -- come ahead of Fed Chair Janet Yellen’s testimony before Congress later Wednesday and amid reports of Russia’s possible involvement in Donald Trump’s presidential election campaign.

“It looks like quite a lot of people are putting weight on Brainard’s remarks, with some wondering if Yellen will take on a dovish tone when she speaks,” said Ayako Sera, a market strategist with Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “The focus point is on what will happen to Fed’s rate hikes, on the backdrop of an anticipated reduction in the bank’s balance sheet.”

Yellen will submit the Fed’s semi-annual Monetary Policy Report, during which her remarks will be closely watched. Donald Trump Jr. on Tuesday released a trove of emails related to a meeting last year with a Russian lawyer, who reportedly held damaging information on Hillary Clinton.

“The so-called Russia-gate problem has surfaced again,” which is weighing on the dollar, said Shinichi Yamamoto, a senior strategist at Okasan Securities Co. in Tokyo. “Instead of going after certain sectors, investors are now likely to cherry pick individual stocks with solid earnings prospects.”

Summary

• Topix -0.5% to 1,619.34 at the close in Tokyo
• Nikkei 225 -0.5% to 20,098.38
• Yen +0.4% to 113.44 per dollar
• Japan’s largest lender Mitsubishi UFJ Financial -1.7%, Sumitomo Mitsui Financial -1.1%, Mizuho Financial -1.2%
• Gauge of telecommunications firms -0.5% as NTT -0.9%, SoftBank Group -0.7%
• Restaurant chain operator Saizeriya +3%, after rising as much as 7.4%; reported a 35% y/y increase in 9-month operating profit, share buyback
• Sumco +3.8%; biggest gainer on Nikkei 225; Goldman sees bump from 3D-NAND, logic production

--With assistance from Nao Sano and Livia Yap

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: Divya Balji at dbalji1@bloomberg.net, Jonathan Annells, Kurt Schussler