Japanese Stocks Enter Bear Market as Fed, BOJ Spark Concerns

(Bloomberg) -- Japanese stocks entered a bear market as the last policy statements of the year from the Federal Reserve and Bank of Japan added to mounting investor concerns.

The Topix index fell 2.5 percent, extending its decline after the BOJ kept its policy unchanged. Electronics makers and telecommunications stocks were the biggest drags on the benchmark gauge, which closed almost 21 percent below its January high.

"It looks like the market had been expecting some sort of action from the BOJ, like maybe an increase in the amount of ETF purchases -- but there was nothing,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. "And with the Fed kind of slowing the pace of its rate hikes, that would mean a weaker dollar and a stronger yen."

The S&P 500 Index declined 1.5 percent on Wednesday to a 15-month low, even after the Fed lowered its forecast for rate hikes next year to two from three. Chairman Jerome Powell suggested he will be more cautious about raising rates in 2019, flagging concerns over the global economy.

“The equity markets leaned toward very dovish views that the Fed may raise rates only once next year or be getting closer to stopping rate hikes, so the Fed’s statement disappointed investors,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Also some investors may be closing their positions ahead of Christmas holidays, weighing on stocks.”

Some investors thought the drop in Japanese stocks went too far. “This is an adjustment on the market from a strongly crowded position, especially on U.S. equities, to a more normal level,” said Frank Benzimra, head of Asia equity strategy at Societe Generale. “I’m surprised at the reaction of the Japanese market, which I find a bit excessive.”

Summary

• Topix -2.5% to 1,517.16, lowest close since April 2017
• Nikkei 225 -2.8% at 20,392.58
• Yen up 0.4% at 112.02 per dollar; pushes 5-day advance to 1.4%
• Electronics makers: Murata Manufacturing -5.6%, Sony -2.3%, Panasonic -5.1%
• Telecom stocks: SoftBank Group -4.7%, NTT Docomo -2.1%, NTT -1.2%
• Screen -5.1%, Tokyo Electron -4.3%, Advantest -3.9%; Goldman Sachs said investors should brace for more capital-spending cuts from memory manufacturers
• Takeda Pharmaceutical +7%; best performer on Nikkei 225; Credit Suisse says valuations look attractive
• Pola Orbis +4.2%; receives government approval for new whitening ingredient

--With assistance from Matt Turner.

To contact the reporters on this story: Livia Yap in Singapore at lyap14@bloomberg.net;Min Jeong Lee in Tokyo at mlee754@bloomberg.net;Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Kurt Schussler

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