[TOKYO] Japanese stocks plunged for a second day as investors rushed to the safety of the yen while concerns that margin calls were triggering automatic selling of shares also weighed on sentiment.
The Topix index sank 3 per cent 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 per cent in late trading.
Volume on the measure was 55 per cent higher than the 30-day average. The Nikkei 225 stock average dropped 2.3 per cent to 15,713.39, triggering margin calls among retail traders.
The yen traded at 114.66 per dollar, near the strongest since November 2014.
Markets in Japan are closed Thursday for a holiday.
"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 US, 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 per cent two-day plunge, the focus is on Federal Reserve chair Janet Yellen as she testifies before the US Congress on Wednesday.
Markets will be parsing her commentary for clues on further US 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 per cent after the underlying equity gauge closed 0.1 per cent 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, which to 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 per cent following yesterday's 8.7 per cent plunge. The Topix Banks Index has lost almost US$93 billion in value since Jan 28, the day before Bank of Japan's introduced negative interest rates, squeezing profitability at lenders.
Information and communication shares dropped as KDDI Corp plunged 5 per cent after reporting third-quarter earnings and saying its biggest shareholder Kyocera Corp would sell a part of its stake back to the mobile carrier.
Credit Suisse Group AG called the move a surprise, but said Kyocera is unlikely to sell more. Kyocera, which is building the world's largest floating solar-power plant, added 2.1 per cent.
SoftBank Group Corp lost 3.5 per cent as the cost to insure the carrier's debt against default surged to the highest since June 2010. Tokyo Electric Power Co sank 7.1 per cent, the most since August.
Bandai Namco Holdings Inc plummeted 12 per cent after lowering its operating-profit outlook as struggling sales of arcade games caused it to write off some assets.
Shimadzu Corp was one of just 131 companies among the Topix's 1,934 members to rise. Shares jumped 5.6 per cent after nine-month profit soared 51 per cent at the maker of analytical and measuring tools.