Japan 10-Year Yield Goes Negative First Time
More, more, more scream the investors. Apparently the Bank of Japan is not doing enough to kill the Yen. That’s the message today as the Nikkei plunged 5% even though yield on the Japanese 10-year government bond went negative for the first time in history.
Bloomberg reports Kuroda’s Three Strikes Drive 10-Year Yield Below Zero.
Japan’s benchmark 10-year yields touched a record low of minus 0.01 percent Tuesday in the wake of the Bank of Japan’s surprise decision on Jan. 29 to charge some lenders on excess reserves held at the central bank. Governor Haruhiko Kuroda drove down yields to unprecedented levels after initiating a monetary base target in April 2013 and a boosting the BOJ’s bond purchases to a record in October 2014. He said last week he could lower deposit rates further or boost bond buying if needed.
Through the Floor
Nikkei Plunges 5%
Bloomberg reports Japan’s Topix Index Extends Decline to 5%.
It’s been a rough couple of weeks for Japanese bank investors.
The shares were the biggest losers after the Bank of Japan decided to introduce negative interest rates late last month, and now they’re being clobbered by a global selloff of financial stocks stemming from concerns about the health of their European competitors.
Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan’s biggest lenders by market value, fell more than 8 percent Tuesday in Tokyo. The companies are now trading at less than half the book value of their assets.
“Japan’s market is getting hit across the board amid the global selloff, and bank shares are being hurt by concerns about the BOJ’s adoption of negative rates,” said Takashi Miura, a Tokyo-based analyst at Credit Suisse Group AG. “Traders are jumpy about the possibility of more easing steps by the BOJ, so it’s hard to buy shares.”
Japan Banks Hammered
Monetary base targets, record bond buying, and even a surprise announcement by the Bank of Japan on negative rates have not been enough to spare the Nikkei of a global equity selloff.
Earlier this evening the New York Times reported Bank Shares Dive on Global Growth Fears.
Japan’s Nikkei share average tumbled to a 2-1/2-week low on Tuesday morning, with banks taking the brunt of the sell-off, while a stronger yen dragged down stocks across the board.
“Investors are increasingly worried about the U.S. economy, and they are worried that a strong yen will eat into Japanese exporters’ earnings,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management. “Concerns about Japan Inc’s earnings will likely persist this year.”
“When the strong yen is a concern, you would buy domestic-demand sensitive stocks like banks, but we can’t buy them now so we are really struggling what to buy on a day like this,” said Masashi Oda, senior investment officer at Sumitomo Mitsui Trust Bank, adding that cash-rich defensive companies with higher dividend yields will likely outperform for the time being.
Inquiring minds may be interested in a picture of the “strong yen”
The Yen strengthened from 120 per US dollar to 78 per US dollar in between June 2007 and January 20012. Since then it has done a complete round trip.
On relatively minor strengthening since mid-2015, fears of an alleged “strong yen” have surfaced.
More on Negative Interest Rates
- January 29: Bank of Japan Adopts Negative Interest Rates: Surprise, Surprise We Lied Again
- February 3: Like Lemmings Over a Cliff: Fed to Test Negative Interest Rates.
- February 4: Damn the Side Effects, More ECB Stimulus Coming.
Mike “Mish” Shedlock