Asia stocks mostly retreated from early highs in a messy trading day Tuesday, with the Tokyo market performing a flip-flop back into losses as initial enthusiasm for Bank of Japan’s monetary-policy plans gave way to selling.
Japan’s Nikkei Stock Average went on a roller-coaster ride, ending the morning session in negative territory ahead of the central bank news, then surging to a 0.7% gain after the announcement, only to do a sharp about-face 15 minutes later, tumbling to a 1.2% loss.
By late in the trading day, the index was off its lows, down 0.5%.
Moves were less pronounced in other markets, with South Korea’s Kospi down 0.1%, and Australia’s S&P/ASX 200 index flat.
In China, Hong Kong’s Hang Seng Index rose 0.2%, while the Shanghai Composite Index was flat.
Japanese stocks were buffeted though the session by expectations leading up to — and then reaction to — the Bank of Japan’s announcement Tuesday that it would introduce open-ended monetary easing and a formal 2% inflation target.
Markets had been expecting the central bank to set out such an inflation target, as well as to announce more asset purchases and outline closer cooperation with the government.
But there had been some doubt that Japan would introduce open-ended easing, with Barclays Capital calling it a “less likely scenario” before the decision.
“I don’t think that there was anything in the announcement that suggests the markets have been wrong in their assessment” of Japanese central-bank moves to fight deflation and support the economy, said AMP Capital Investors head of investment strategy Shane Oliver.
“Markets have bought into this, and now that it’s happened there’s a bit of profit-taking,” he said.
“I see this as a bit of a correction,” Oliver said, tipping more gains for Japan’s stocks should consumer prices begin to approach the new target.
“A huge chunk of money is going to be pumped into the Japanese economy,” Oliver said. “It’s a major policy development to add to other major developments” such as U.S. fiscal issues and a delay to implementation of Basel III reforms.
Japanese stocks had already rallied substantially in recent weeks on expectations of aggressive easing, which had worked to depress the yen.
Reaction to the news was similar in the currency markets to that seen in the stock market. The dollar jumped to ¥89.97 Tuesday — briefly topping the ¥90 level — after the policy announcement, to trade more than 13% above where it stood three months ago.
But the currency soon reversed, shaving almost an entire yen off the rate, which fell to ¥89.06.
As a result of the forex moves, exporters saw some losses in the afternoon, with Komatsu Ltd. down 1.1% and TDK Corp. retreating 1.8%.
But financials — which rallied immediately after the Bank of Japan statement — hung onto gains, with Shinsei Bank Ltd. up 2.4% and Daiwa Securities Group Inc. climbing 1.1%.
Ahead of the central bank moves, corporate news also generated some buying interest in Japan, with Olympus Corp. up 7% after its shares were taken off the Tokyo Stock Exchange’s list for possible delisting. Olympus shares plunged in 2011 following an accounting scandal.
Kirin Holdings Co. rose 3.1% after reports that Thai billionaire Charoen Sirivadhanabhakdi had increased his offer to buy Singapore-listed Fraser & Neave Ltd .
Kirin, along with a group led by property firm Overseas Union Enterprise Ltd. , had previously made an offer to buy Fraser & Neave — shares of which fell 2% in Singapore. OUE shares were up 2.9% in Singapore.
In Hong Kong, Aluminum Corp. of China Ltd. rose 1%, and China Petroleum & Chemical Corp. gained 1.1%, helping the market move off early lows.
Ports operator Cosco Pacific Ltd. remained 1.8% lower, however, and selected property stocks also declined, with Hang Lung Properties Ltd. down 0.8%.
Mainland Chinese trading also saw property-sector losses, with Gemdale Corp. down 2.3%, and Poly Real Estate Group Co. falling 1.8%.
In South Korea, Samsung Electronics Co. rose 1.6% to pare recent losses, but Korea Gas Corp. dropped 6.8% after reports that the firm is unlikely to issue 5.4 trillion won ($5.08 billion) of asset-backed securities.
Sydney trading saw some weakness in the financial sector, with IOOF Holdings Ltd. down 2.5%, and bourse operator ASX Ltd. down 0.6%.
On the upside in Australia, MacMahon Holdings Ltd. jumped 5.9% after getting its largest-ever mining deal, a $1.9 billion contract to expand a Fortescue Metals Group Ltd. mine. Shares of Fortescue rose 2.1%.
While miners should benefit from an improvement in the economic outlook for Japan — one of Australia’s biggest trading partners — currency-market reaction to Japan’s deflation fighting moves could be a “fly in the ointment” for Australia, said Oliver at AMP.
The Bank of Japan move will likely encourage more people to use the yen to fund carry trades into the Australian dollar, he said. This could push the Australian currency to even loftier levels, making life difficult for Australian exporters and manufacturers.
U.S. markets were closed for a holiday on Monday but were slated to reopen Tuesday, with earnings likely to dominate investors’ focus.
Marketwatch
