Japanese Shares on Holiday Even Before Golden Week

(Bloomberg) -- There’s still time for a few trades this week before markets are shuttered and Japan’s investors head off for an extended Golden Week holiday. Yet you would hardly know it based on the drop in trading activity already.

Tokyo’s benchmark Topix Index hasn’t seen a one percentage point or more move in eight trading days, with the gauge up 0.6 percent Thursday, and daily volumes were less than 1 billion shares from Friday through Tuesday. That’s the longest such stretch of low volumes since December 2017. As traders digest the Bank of Japan’s latest policy announcement Thursday, with one eye on the Narita Express, it remains to be seen how volumes will fare for the rest of the week.

Japanese Shares on Holiday Even Before Golden Week

The Bank of Japan announced it will keep interest rates extremely low through at least around spring 2020 while leaving its key monetary stimulus settings unchanged. The central bank also forecast it won’t hit its 2 percent inflation target for at least another three years. The BOJ is also considering an exchange-traded fund lending facility -- a move that may address concerns about market liquidity, yet may also encourage greater shorting of Japanese equities in the future.

The mixed results come as some of the steam goes out of the wider Asian rally after a hot start to 2019. While the MSCI Asia Pacific Index is up 11 percent for the year, the bulk of that gain was in January.

Optimism over a U.S.-China trade deal and the Federal Reserve’s dovish pivot has had to contend with increasing concerns about a global economic slowdown and recent strength in the dollar. The yen has declined over 2 percent this year.

There’s little impetus for traders in Japan to make any outsized wagers ahead of a 10-day holiday that will leave them out of the domestic market until May 7, while the nation celebrates the transition to a new emperor and the start of the Reiwa era.

For traders, there will be plenty of opportunities to invest once the new era dawns, as work begun during the Heisei era on longstanding issues such as corporate governance reform will continue, said Takashi Maruyama, chief investment officer of Fidelity International in Japan.

“While more companies have increased shareholder returns through steps such as higher dividends and share repurchases, there is still room for improvement,” he said in a note to clients.

Resolution on the issue of the longstanding practice of cross-shareholdings in particular is expected to come in the new era as companies improve their governance practices, he said. As cross-shareholdings diminish, corporate discipline will increase and efficiency will improve, “which should lead to higher profitability,” he added.

“The Japanese economy is facing challenges, including an aging population and the eventual exit from easy monetary policy, Maruyama said. “But the market will recognize and reward Japanese companies that improve their management, shareholder returns and asset efficiency.”

Stock-Market Summary

  • MSCI Asia Pacific Index little changed
  • Japan’s Topix index up 0.6%; Nikkei 225 up 0.5%
  • Hong Kong’s Hang Seng Index little changed; Hang Seng China Enterprises down 0.5%; Shanghai Composite down 0.7%; CSI 300 down 0.7%
  • Taiwan’s Taiex index little changed
  • South Korea’s Kospi index down 0.3%; Kospi 200 little changed
  • Australia’s S&P/ASX 200 up 1%; New Zealand’s S&P/NZX 50 up 0.7%
  • India’s S&P BSE Sensex Index little changed; NSE Nifty 50 little changed
  • Singapore’s Straits Times Index down 0.1%; Malaysia’s KLCI down 0.2%; Philippine Stock Exchange Index little changed; Jakarta Composite down 0.8%; Thailand’s SET little changed; Vietnam’s VN Index down 0.4%
  • S&P 500 e-mini futures little changed after index closed down 0.2% in last session

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