Volatility in the Tokyo stock market will remain for the foreseeable future, with further declines possible as investors seek safer options amid global growth concerns.

Many market participants point their fingers at the Bank of Japan’s Jan. 29 decision to adopt a negative interest rate policy as one of key factors behind the amplified risk-averse mood.

The Nikkei stock average gained 2.8 percent the day the central bank announced the new easing policy, but the index has lost 15 percent since, and closed Friday at a 16-month low of 14,952.61. It has plummeted 21 percent since the start of the year.

Analysts say the Nikkei could fall past the 14,500 line with financial market players flocking to the perceived safety of the yen in the foreign exchange market and fueling fears of earnings deterioration at major Japanese companies.

Most major companies’ earnings projections are based on an assumed dollar rate of ¥117 to ¥118, suggesting the recent strength of the yen will squeeze their profits when they repatriate overseas earnings.

“It is hard to explain the single trigger of the current weakness of the Tokyo stocks. But the risk-averse mood in the market is basically driven by the uncertainty over the impact of the negative interest rate policy, heightening demand for safe-haven assets,” says Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management Co.

“This consequence was unintended by the BOJ, which expected the yen to weaken and equities to rise when it first announced that it would take interest rates to negative territory,” Ichikawa says. “The exact opposite has happened.”

The Nikkei’s drop to a 16-month low means the recent sell-off has erased not only the surge on the day of the negative interest rate announcement, but also the gains made since the BOJ surprised the market in October 2014 with additional monetary easing measures that had also helped trigger the yen’s prolonged weakness.

The financial market initially welcomed the BOJ’s decision to set a negative interest rate on some of the funds financial institutions park at the central bank in a bid to help boost lending and spur economic growth.

However, the stock rally and the yen’s depreciation triggered by the surprise monetary policy was short-lived, as the risk-averse mood was compounded by concerns about falling crude oil prices and the Chinese economic outlook.

The fall of 10-year Japanese government bonds’ yield to negative territory for the first time raised doubts about the latest monetary policy’s impact on the economy.

Concerns grew that negative rates would hurt commercial banks by squeezing the profit margin between interest rates on bank loans and deposit rates, leading to sharp drops in bank shares.

While investors fret over the negative rate implications, fears of U.S. recession and worries about the health of European banks intensified the flight to safe-haven assets.

The yen, which traded in the 118 range before the BOJ decision, has gone up to 112 against the dollar after rocketing to 110 in overseas trading Thursday.

Sumitomo Mitsui Asset’s Ichikawa says the global growth concerns and the strong yen could push Nikkei further down to around 14,500 points, but the tide may change if the world’s policymakers hammer out cooperative steps toward dispelling uncertainties clouding financial markets.

“A turnaround could come at the end of this month,” he says, when financial and central bank chiefs from the Group of 20 economies meet in China.

If the G-20 officials can agree on policy cooperation which can allay market concerns, “the yen could go back to the 118 zone, where it was before the BOJ’s surprise move, and Tokyo stocks could recover the 17,000 line again,” Ichikawa says.

Shingo Ide, chief equity strategist at NLI Research Institute, says detrimental external factors, mainly the perceived risk of a U.S. recession, could take the Nikkei even below the 14,500-point line if the yen continues to push higher.

However, the tide would change once positive signs about the U.S. economy start to revive investors’ risk appetite again, he says.

“Brighter news out of the U.S. will strengthen the dollar, and Tokyo equities could rise above the 18,000 line,” Ide says.

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