(Bloomberg) — Japanese shares fell for a second day on expectations for further monetary tightening in the country, exacerbating a global sell-off after weak U.S. economic data and technology earnings.
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The Topix index fell as much as 5.7%, the most since 2020, while the yen traded near its strongest since March, putting pressure on Japan’s export-oriented economy. Shares also fell across Asia, from South Korea to Hong Kong, with AI chipmaker SK Hynix Inc. fell by 8.7%.
Meanwhile, government bonds continued their rally in Asia, with policy-sensitive two-year yields hitting a 14-month low amid increased bets on Federal Reserve rate cuts after the central bank’s policy meeting on Wednesday. Swap traders increased the number of cuts this year from two to three.
The broader risk sign came after data showed weekly U.S. jobless claims hit their highest in nearly a year, while manufacturing shrank. The technology-driven losses were driven by disappointing earnings prospects or results from industry giants like Intel Corp. and Amazon.com Inc. The focus will now shift to the monthly jobs figures later Friday.
What has investors in Japan on edge is the prospects for the country’s central bank to raise interest rates further following its decision earlier this week. The Bank of Japan’s major policy shift this week makes another rate hike very likely in October and raises the potential for quarterly hikes, according to a former executive director in charge of monetary policy.
“The recent strengthening of the Japanese yen coupled with weakness in the technology sector is poised to have a significant impact on the Asian stock market,” said Manish Bhargava, fund manager at Straits Investment Holdings in Singapore. “Japanese exporters are particularly vulnerable to the appreciation of the yen as it erodes the value of their foreign earnings.”
The MSCI Asia Pacific Index fell as much as 3.1%, the most in more than two years, with technology and industrial companies among the biggest losers.
Futures on the S&P 500 and Nasdaq 100 also fell in Asia, exacerbating Thursday’s declines for the underlying benchmarks. Intel said third-quarter revenue will disappoint, while Amazon.com forecast profits that beat analyst estimates, sending shares of each company lower in after-hours trading.
Treasuries rose again on Friday, with the 10-year yield extending its slide below 4%, partly due to stronger demand for safe-haven assets. Yields on the two-year bond fell one basis point, adding to the 11 basis point decline the day before.
The yen posted a three-day gain, a rally that had pushed the currency to around 149 per dollar. The pound fell on Thursday after the Bank of England cut interest rates, signaling further cautious cuts. A Bloomberg dollar gauge moved higher.
In addition to the recent rise in the yen, renewed concerns about the health of the world’s largest economy weighed on Japanese stocks.
“I didn’t expect the shares to fall so much,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Asset Management Co. in Tokyo. “This is likely because there are concerns that the US economy will experience a widespread collapse, which is the most unpleasant pattern for Japanese stocks.”
American jobs
Economists expect a moderation in job growth in the government’s July employment report, due Friday. Forecasters expect the unemployment rate to remain stable at 4.1%.
“The ‘hard landing’ genie has one leg out of the bottle, and soon two if tonight’s non-farm payrolls disappoint,” said Tony Sycamore, analyst at IG Australia. If the unemployment rate heads toward 4.3% and job creation slows to less than 100,000, “then all bets are off,” he said.
Elsewhere in Asia, a policy adviser to China’s central bank issued a rare criticism of Beijing’s economic policies for being too conservative. He urged the government to step up fiscal stimulus and promote inflation. The country’s CSI 300 stock index extended losses from Thursday after a brief rally in the previous session.
In the commodities sector, oil rose after falling on Thursday amid concerns that tensions in the Middle East could impact supply. Elsewhere, gold hovered near record levels.
Main events this week:
Some of the major moves in the markets:
Shares
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S&P 500 futures fell 0.8% as of 12:43 p.m. Tokyo time
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Nasdaq 100 futures fell 1.3%
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Japan’s Topix fell 4.9%
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Australia’s S&P/ASX 200 fell 2.2%
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Hong Kong’s Hang Seng fell 2%
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The Shanghai Composite fell 0.4%
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Euro Stoxx 50 futures fell 0.7%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0792
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The Japanese yen was little changed at 149.47 per dollar
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The offshore yuan rose 0.2% to 7.2352 per dollar
Cryptocurrencies
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Bitcoin fell 0.5% to $64,349.07
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Ether fell 0.2% to $3,162.79
Bonds
Raw materials
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West Texas Intermediate crude rose 0.8% to $76.93 a barrel
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Spot gold rose 0.3% to $2,453.95 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from Abhishek Vishnoi and Yasutaka Tamura.
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