Tokyo: Nikkei index ends down 3% on inflation worries

TOKYO’S key Nikkei index slumped 3 per cent at the close on Monday (Jun 13) after US inflation data fuelled concerns about a more aggressive pace of Federal Reserve monetary tightening.

The benchmark Nikkei 225 index dropped 3.01 per cent or 836.85 points to 26,987.44, while the broader Topix index fell 2.16 per cent or 42.03 points to 1,901.06.

The market opened lower, as global inflation worries escalated on fresh US data and drove down Wall Street, especially high-tech issues.

The dollar continued to advance against the yen, which hit its lowest level since 1998 on Monday afternoon.

Japan’s currency has been weakening for months, accelerated by the US Federal Reserve’s aggressive monetary tightening to tackle soaring inflation.

Unlike the Fed, the Bank of Japan has said it will stick with its long-standing monetary easing programme which it hopes will lead to stable growth.

The market headed south as global investors worried that the latest US inflation data, which came out above the market’s expectations, may speed up US rate hikes.

“The US consumer price index in May, released last week, showed the biggest rise in four decades,” Okasan Online Securities said in a note.

“It faded the market’s hopes that inflation was peaking out.

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“US shares faced broad selloffs, particularly high-tech shares. The Tokyo market is likely to open the new week in difficult condition,” it said.

For the immediate future, global investors will focus on the next policy meeting of the US Federal Reserve, with Fed chair Jerome Powell meeting the press after the decision on Wednesday.

“The market is now thinking much more about the Fed driving rates sharply higher to get on top of inflation and then having to cut back as growth drops,” Stephen Innes of SPI Asset Management wrote in a note.

He said a 50 basis point rate hike from the Fed this week was a “done deal” and also predicted another 50 point hike in September.

Meanwhile the dollar was likely to stay buoyant with the Bank of Japan in no mood to change its super easy monetary policy for the foreseeable future, Innes added.

In Tokyo trading, market heavyweight SoftBank Group tanked 6.85 per cent to 5,165 yen.

Chip-making equipment manufacturer Tokyo Electron plunged 5.26 per cent to 52,730 yen while industrial robot-maker Fanuc dropped 3.63 per cent to 20,545 yen.

Automakers were lower with Toyota sinking 3.26 per cent to 2,131.5 yen, Honda tumbling 3.11 per cent to 3,292 yen and Nissan falling 3.45 per cent to 544.5 yen. AFP