Japan's Rate Uncertainty Weighed On Tokyo Stocks In Monday's Trading

Akira Ito
26 Aug, 2024
Tokyo

Stocks in Tokyo reversed the previous session's gains despite Friday's advance in New York as investors reacted to the strengthening yen. 

The Nikkei 2225 stock average and the Topix index fell 1% after the yen advanced and investors reassessed their rate outlook following comments from Bank of Japan Governor Kazuo Ueda. 

The yen advanced to 144.13 against the U.S. dollar after BoJ Governor Ueda said in a testimony to lawmakers on Friday that the central bank is ready to raise rates if ongoing economic data support the move. 

The prospect of a higher interest rate in Japan, coupled with a negative rate outlook in the U.S., supported the yen's advance for the second week in a row. 

A stronger yen dampens the earnings outlook of Japanese exporting companies and also forces speculators to unwind the yen carry trade. 

Investors remained on the sidelines amid the growing possibility of a rate hike at the end of the next policy meeting in Tokyo. 

U.S. Federal Reserve Chair Jerome Powell sent his clearest signal so far: that the central bank is ready to adjust its monetary policy and may lower rates if there is ongoing economic data.

Powell did not say the amount and timing of the rate cut, but traders are anticipating at least a 25 basis point rate cut after the policy meeting on September 19, followed by additional rate cuts of at least another 50 basis points over the next policy meetings in 2024. 

The dovish comments from Fed Chair lifted market indexes by as much as 1.4% in New York in Friday's trading, but that also raised the prospect of more yen carry trade unwinding in Tokyo, putting additional pressure on stocks.

 

Japan Stock Movers 

The Nikkei 225 stock average decreased 0.9% to 38,024.32, and the Topix index declined 1% to 2,657.0. 

Tech stocks were among the leading decliners in Monday's trading in Tokyo, and SoftBank, Disco Corp., Screen Holdings, Tokyo Electron, Advantest, and Lasertec declined between 0.5% and 2.5%. 

Retailers were under pressure following the yen's rise, as a higher yen dampens tourist spending at Japanese stores. 

Isetan Mitsukoshi dropped 6.3% to ¥2,180.0, Seven & I declined 0.7% to ¥2,041.0, and Mercari dropped 3% to ¥2,269.0. 

Mitsubishi UFJ Financial dropped 1.9% to ¥1,495.50, Sumitomo Mitsui fell 3.2% to ¥9,578.0, and Mizuho Financial declined 2.6% to ¥2,995.0. 

Toyota Motor declined 3.5% to ¥2,589.50, Honda Motor decreased 2.9% to ¥1,533.50, and Nissan Motor fell 4% to ¥422.80.