- MSCI's global index capped 20% drop from May record Thursday
- Japanese shares pare losses as yen starts reversing advance
The Topix index slumped 4.1 percent in Tokyo as traders returned from holiday, pushing the regional Asian benchmark toward its steepest weekly drop since gyrations in Chinese assets at the start of the year. The index pared some of its losses as the yen weakened for the first time this week. U.S. index futures indicated gains after losses there helped the MSCI All-Country Index cap a 20 percent slide from its May record.
“We’ve entered a different phase in the market,” said Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo. “We’re not simply in a risk-off mode, the market’s fallen to the point of pricing in a recession in the U.S.”
Japanese Finance Minister Taro Aso said regulators will respond to market volatility if necessary after a move to negative rates failed to assuage anxieties last month. A stronger yen threatens to imperil the world’s third-largest economy through disinflation and lower profits for exporters. Investors ignored a second day of testimony from Janet Yellen, whose indication that the Federal Reserve won’t rush to raise interest rates failed to stem a selloff in riskier assets.
The MSCI’s Asia Pacific Index was down 2.2 percent as of 1:04 p.m. Tokyo time, on track for a weekly decline of 5.4 percent. The Topix has lost 11.4 percent this week, the most since October 2008. While Japan resumed trading after a Thursday break, markets in mainland China, Taiwan and Vietnam remain closed for Lunar New Year holidays.
Hong Kong’s Hang Seng Index lost 0.5 percent, the Kospi index in Seoul slipped 1.5 percent, while Australia’s S&P/ASX 200 Index sank 0.8 percent. Futures on the Standard & Poor’s 500 Index rallied 0.6 percent. The S&P 500 reduced a slump of as much as 2.3 percent to close down 1.2 percent in afternoon trade.
“Central bank policies and the uncertainty around their effectiveness is the big macro concern right now,” said Leo Grohowski, who helps manage more than $184 billion in client assets as chief investment officer of BNY Mellon Wealth Management in New York.
The yen weakened 0.5 percent to 112.94 per dollar. Japan’s currency has strengthened at least 2 percent against all its 31 major peers since Jan. 29 amid demand for haven assets. Government officials expressed concern at the moves, fueling speculation Japan may intervene.
“The verbal intervention has already started, with Ministry of Finance officials talking about moves being rough, which looks like the new code word for undesired strength,” said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd. in Sydney. “110 might be some line in the sand when the MOF will lean on the BOJ to shore things up.”
Higher-yielding and developing nation currencies weakened. The New Zealand dollar fell 0.5 percent to 66.84 U.S. cents, while the Malaysian ringgit dropped 0.5 percent, the Thai baht slid 0.7 percent and the South Korean won lost 0.3 percent.
Japan’s 10-year government bond yield rose 3.5 basis points to 4 basis points after falling below zero earlier this week. The similar U.S. Treasury yield rose four basis points to 1.70 percent. The Markit iTraxx Asia index of credit-default swaps rose two basis points to 183, the highest since 2012. That for Japan climbed five basis points to 107.
Oil rebounded amid the most volatile prices since 2009 as speculation swirls over whether producers will act to bolster the market. Futures climbed as much as 5.9 percent, paring this week’s loss to 10 percent.
Gold retreated 1 percent after a 4.1 percent surge on Thursday. Bullion is set to climb 5.1 percent this week, the most since 2011, as investors flee a bear market in global stocks, a weakening dollar and the fallout from negative interest rates.
Nickel rose 1.5 percent after slumping 3.6 percent on Thursday to the lowest close since 2003. Prices are set to drop 5.6 percent this week.