Japanese shares fell, with the Nikkei 225 (NKY) Stock Average capping a two-day loss, as the yen’s gain against all its major counterparts cut the earnings outlook for exporters.
Toyota Motor Corp., the world’s biggest automaker, declined 2 percent. Aozora Bank Ltd. dropped 4 percent, extending yesterday’s 10 percent plunge, after confirming Cerberus Capital Management LP is set to sell most its stake in the lender. Nippon Building Fund Inc. slid 3.5 percent after the real estate investment trust announced a share sale.
The Nikkei 225 slid 0.9 percent to close at 10,508.06 in Tokyo, with trading volume 25 percent higher than the 30-day average. The broader Topix (TPX) Index fell 1 percent to 871.88.
“The yen’s weakness has been excessive and is getting adjusted today,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages the equivalent of about 6 trillion yen ($68.6 billion). “It’s no surprise the market is experiencing a correction because the recent rally ignored technical overheating signs.”
The Nikkei’s 14-day relative strength index was 73 today, over the 70 threshold viewed as an indication of overheating, after the benchmark gauge last week rose to a 22-month high. The gauge has been over 70 for the past seven trading days.
The Topix has risen about 21 percent since Nov. 14 when elections were announced, driving the gauge into a bull market on expectations a new government would call for more stimulus. An advance of 20 percent or more from a low signals a bull market to some investors. The gauge is trading at 1.04 times book value, compared with 2.19 for the Standard & Poor’s 500 Index (SPXL1) and 1.58 for the Stoxx Europe 600 Index.
Exporters dropped as the yen gained against all of its 16 major counterparts. A stronger currency cuts the value of overseas earnings at Japanese exporters. Toyota fell 2 percent to 4,100 yen. Nintendo Co., a maker of game players that gets 77 percent of its sales outside Japan, slid 3.1 percent to 8,700 yen.
Goldman Sachs Group Inc. raised its 12-month target for the Topix to 1,000 from 930 amid optimism new Prime Minister Shinzo Abe, who leads the Liberal Democratic Party, will take measures to bolster the economy ahead of upper house elections in July, chief Japan strategist Kathy Matsui wrote in a note dated yesterday.
Japan’s latest stimulus plan will top 20 trillion yen when local government and private funds are included, the Nikkei newspaper reported today.
“Market expectations for policy action are likely to last until the biggest event of this year, which is whether the LDP coalition can win back a majority in the upper house,” Monji at Daiwa SB said.
Futures on the S&P 500 dropped 0.1 percent today. The gauge slid 0.3 percent in New York yesterday, retreating from a five- year high as investors await the beginning of earnings season.
The Nikkei Stock Average Volatility Index (VNKY) dropped 6.6 percent to 19.15, indicating traders expect a swing of about 5.5 percent on the benchmark gauge over the next 30 days.
Aozora dropped 4 percent to 240 yen after saying Cerberus will sell as many as 632.5 million shares at a price to be determined as soon as Jan. 16.
Nippon Building Fund declined 3.5 percent to 892,000 yen as it plans to raise up to 66.7 billion yen from a public share sale.
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