Weekly Market Outlook

Most Japanese Shares Rise as Investors Look to Fed, BOJ Meetings

Most Japanese stocks ended higher after the benchmark index fluctuated throughout the day as investors speculated on approaching monetary policy decisions from the Federal Reserve and Bank of Japan.

The Topix advanced as much as 0.6 percent in the morning, after dropping 1.5 percent on Monday for the worst selloff since June. The index fell as much as 0.4 percent by the afternoon as a slump in banks dragged on the market. Federal Reserve Board of Governors member Lael Brainard called for prudence ahead of any tightening of monetary policy during a speech on Monday, helping U.S. equities rebound. The BOJ meets next week with investors left guessing about the prospects for further stimulus after comments from Governor Haruhiko Kuroda last week.

Nikkei 225+0.3%16,729.04

“With Brainard’s remarks, rate-hike expectations have backed down. It seems that the slump in U.S. equities last week was a bit overdone,” said Toshihiko Matsuno, a senior strategist at SMBC Friend Securities Co. in Tokyo. “But the market isn’t likely to take on an aggressive buying mode before the results from the BOJ and the Fed’s monetary policy meetings next week.”

While receding expectations over a near-term rate increase by the U.S. is likely to be supportive of global equity markets, the impact on Japanese equities could be complicated by the yen’s moves, analysts say. The yen swung between gains and losses in Asia after rising 0.8 percent Monday.

Currency and equity markets have been whipsawed in recent weeks amid opposing views from Fed officials as investors seek more clarity on the U.S. central bank’s next policy move. Brainard’s comments appeared to counter those of Boston Fed President Eric Rosengren, who said the U.S. economy could overheat should policy makers wait too long to tighten, triggering a global stock rout.

A total of 936 stocks rose on the Topix while 859 fell, with pharmaceutical companies contributing most to the day’s gains. Banks and insurers were down throughout the day, while a gauge tracking automakers was up 1 percent before paring gains to end 0.3 percent higher.

“The risk-off mode triggered by concerns over a U.S. rate hike has eased with a rebound in U.S. equities,” said Hiroaki Mino, a senior strategist at Mizuho Securities Co. “But the upside in Japanese equities is being capped, especially for exporters, due to a stronger yen.”

The Nikkei Stock Average Volatility Index fell 6.6 percent after jumping the most in three months on Monday.

  • Mitsubishi UFJ Financial Group Inc. lost 1.5 percent, while Sumitomo Mitsui Financial Group Inc. slid 2.2 percent. An index of banks on the Topix rallied as much as 30 percent from this year’s low on July 8. Banks are giving up some of the gains they chalked up on the prospect of making money from a steeper yield curve amid investor concerns that the BOJ will push deeper into negative interest rates territory.
  • A gauge tracking pharmaceutical companies rose 1.4 percent. Takeda Pharmaceutical Co., which has the largest weighting in the measure, gained 1 percent. Dermira Inc. said it acquired an option to license exclusive worldwide rights for as many as three early-stage programs from Takeda.
  • Kumiai Chemical Industry Co. slid for a second day, falling 5.3 percent, after Daiwa Securities cut the stock’s rating to neutral from buy. Kumiai slumped 12 percent Monday after it cut its full-year operating profit forecast 41 percent.

Futures on the S&P 500 Index fell 0.5 percent. The underlying equity gauge jumped 1.5 percent Monday, as odds of a U.S. rate hike in September slid to 22 percent following Brainard’s comments.