Japan Shares Slide for Seventh Day on Negative-Rate Speculation

(Bloomberg) -- Shares in Tokyo dropped, with the Topix index posting its longest losing streak since 2014, on bets the Bank of Japan will make deeper cuts to negative interest rates.

The Topix fell for a seventh day, with banks and automakers leading the decline at the close of trading in Tokyo Thursday. After a two-month rally, investors turned bearish on Japanese shares last week amid a global selloff as the market weighed upcoming monetary policy decisions from the BOJ and the Federal Reserve. A gauge tracking lenders has fallen 9.5 percent from a peak on Sept. 2 amid concerns a deeper dive into negative rates by the BOJ will stymie hopes for an earnings recovery.

The BOJ will probably cut the rate on some bank reserves to minus 0.2 percent from minus 0.1 percent, Morgan Stanley economists Takeshi Yamaguchi and Robert Alan Feldman wrote in a note, following a report in the Nikkei newspaper that the central bank is exploring a deeper foray into negative rates to stoke inflation.

Worsening Sentiment

“With escalating uncertainty surrounding the U.S. and Japan’s monetary policies, there’s a deep-rooted yearning to cut down on any long positions in stocks,” said Mitsuo Shimizu, deputy general manager at Japan Asia Securities Group Ltd. in Tokyo. “It’s hard to say whether the U.S. economy is strong enough to withstand a rise in interest rates. With the fall in American shares from last week, investor sentiment has been worsening.”

The Japanese currency extended gains after rising 0.1 percent against the dollar Wednesday. The yen has surged 18 percent year-to-date as the BOJ’s decision to tap into negative interest rates at the beginning of the year sparked doubts over the effectiveness of the extraordinary move.

“Minus interest rates are supposed to make the yen weaker, but if the move triggers concerns over the potential negative impact on the overall economy, the yen could strengthen again,” said Naoki Fujiwara, chief fund manager with Shinkin Asset Management Co. in Tokyo. “What we witnessed last time has left a strong impression, like a trauma.”

All but two of the 33 industry groups on the Topix fell. Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. each sank 1.9 percent. Among automakers, Toyota Motor Corp., the world’s largest car manufacturer, lost 1.3 percent. A gauge tracking the industry has fallen for four out of five sessions.

• Lawson Inc. jumped 7 percent, the biggest gain since March 2011. Mitsubishi Corp., the largest shareholder, is considering increasing its stake in the convenience store operator to make it a subsidiary.
  
  
• Mitsui Fudosan Co. dropped 4.4 percent, and Sumitomo Realty & Development Co. dipped 5 percent. Jefferies cut its rating on the Japanese real estate sector to underweight, saying prospects for both the office leasing and new condo sales markets are getting worse.
  
  
• Utility companies Hokkaido Electric Power Co. and Kyushu Electric Power Co. slumped 6.2 percent and 5.2 percent, respectively. Goldman Sachs Group Inc. downgraded its rating on the two power companies, citing risks of nuclear plant shutdowns.
  
  
• Apple Inc. supplier Alps Electric Co. rose for a third day on reports suggesting better-than-expected sales for the iPhone 7. The stock was the biggest gainer on the Nikkei 225 Stock Average with a 3.4 percent advance.

--With assistance from Yuko Takeo To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net, Nobuyuki Akama in Tokyo at akam@bloomberg.net. To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, Andreea Papuc, Chan Tien Hin