Japan's Nikkei suffers worst week since September on hawkish BOJ bets

JAPAN’S Nikkei share average logged its worst weekly decline since mid-September after falling on Friday (Dec 8), driven by increasing speculation about an imminent end to decade-old Bank of Japan (BOJ) stimulus measures.

Automakers and exporters were hit by the surge in yen, eroding the value of their overseas revenue.

The Nikkei ended Friday down 1.68 per cent at 32,307.86, taking its loss for the week to 3.36 per cent. The benchmark index had earlier touched its lowest since Nov 10. Still, it remains up nearly 24 per cent this year.

The broader Topix dropped 1.5 per cent on the day and 2.44 per cent for the week.

The Tokyo Stock Exchange’s transport equipment subindex was the worst performer among the 33 industry groups, dropping 3.69 per cent on Friday.

Toyota Group companies were among the Nikkei’s biggest laggards, with parts maker JTEKT dropping 4.98 per cent, logistics arm Toyota Tsusho sliding 4.88 per cent and Denso slumping 4.51 per cent. Toyota Motor also fell 4.08 per cent.

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The Japanese currency surged more than 2 per cent overnight, hitting a four-month high at 141.60 per dollar after BOJ Governor Kazuo Ueda said the central bank is considering various options to target interest rates once it withdraws short-term borrowing costs from negative territory, marking the clearest sign yet of an imminent departure from stimulus measures.

“Clearly, there are a lot of nerves in the market about a normalisation of policy,” Nomura Securities strategist Kazuo Kamitani said. However, “even if we see yen appreciation continue, the effect on corporate earnings will be pretty much nil,” limiting Nikkei declines, he added.

At the same time, predicting the yen’s movement is “extremely hard,” and a potential return to a weaker unit could propel the Nikkei to a fresh 2023 peak before year-end, Kamitani said.

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Of the 225 Nikkei components, 189 dropped, 34 rose and two remained unchanged.

Bank shares outperformed on expectations of an end to ultra-low bond yields, in turn improving the outlook for returns on lending and investment. The TSE’s banking index gained 0.29 per cent. REUTERS