Stocks in Tokyo plunged for a second day Wednesday and the yen strengthened as investors rushed to safe-haven assets.
The Topix index sank 3 percent to 1,264.96 at the close in Tokyo, capping the biggest two-day loss since August and lowest close since October 2014. It pared a loss of as much as 4.4 percent in late trading.
The Nikkei average dropped 2.3 percent to 15,713.39.
The Nikkei — which fell more than four percent at one stage on Wednesday — was last around this level before the Bank of Japan expanded its massive program of asset-buying.
The yen briefly traded at 114.26 per dollar on Wednesday. A stronger yen hurts the profitability of exporters and tends to dent demand for their shares.
Markets in Japan are closed Thursday for a holiday.
A brief rally stoked by the Bank of Japan’s decision last month to adopt a negative interest rate policy — effectively charging banks to park their cash with it in a bid to ramp up lending and boost the economy — has fizzled.
The move also sent the yield on 10-year Japanese government bonds into negative territory for the first time Tuesday, as investors push into assets seen as safe bets.
“Japanese stocks are suffering from a triple punch and it’s difficult to bounce back,” Tomoichiro Kubota, a senior analyst at Matsui Securities Co. in Tokyo, said by phone. “We have worries over financial institutions in Europe, problems in the bond market, and concerns aren’t alleviated at all. There’s still a sense of wariness toward commodity-related corporate earnings in the U.S., so that’s a negative, plus the yen is being favored as a place of refuge.”
With investors reeling from the yen’s surge and the Topix’s 8.4 percent two-day plunge, the focus is on Federal Reserve Chair Janet Yellen as she testifies before the U.S. Congress on Wednesday. Markets will be parsing her commentary for clues on further U.S. rate increases amid concerns over the creditworthiness of European banks, oil’s decline and the strength of the global economy.
E-mini futures on the Standard & Poor’s 500 Index slipped 0.4 percent after the underlying equity gauge closed 0.1 percent lower on Tuesday, paring earlier losses as speculation that Deutsche Bank AG is considering buying back billions of its bonds fueled an afternoon rebound in equities.
Wednesday’s plunge sent both the Topix and Nikkei 225 below levels reached in January, to which Kubota indicates it is “highly likely we’ll keep falling.”
Investors said this week’s declines to below key levels have triggered margin calls among retail traders, who are being automatically forced to close souring bets. That’s adding to the selling pressure, according to Miki Securities Co.
“There’s been a lot of margin calls after the rout. With yesterday’s falls the amount of margin calls have shot up today,” said Jun Kitazawa, deputy manager of investment information at Miki. “Today’s falls in Japanese stocks have been caused by selling related to Nikkei-leveraged ETFs.”
Japanese banks were among the biggest losers for a second day, with Mitsubishi UFJ Financial Group Inc. dropping 7.1 percent following yesterday’s 8.7 percent plunge. The Topix Banks Index has lost almost $93 billion (about ¥10.7 trillion) in value since Jan. 28, the day before Bank of Japan’s introduced negative interest rates, squeezing profitability at lenders.