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Japan’s Nikkei share average tumbled 2.6 per cent to a one-week low on Monday morning after Japan’s economy unexpectedly slipped into recession.
The news prompted investors to take profits after recent gains stemming from expectations Prime Minister Shinzo Abe will postpone a planned sales tax hike.
GDP data
Japan’s economy unexpectedly shrank an annualised 1.6 per cent in July-September after a severe contraction in the previous quarter. Traders said the GDP figure made investors risk-averse.
The Nikkei benchmark closed the morning session down 2.6 per cent to 17,037.65. It touched 16,993.89, its lowest level since November 11.
“The GDP figure proved that it was foolish that the government hiked a sales tax (in April) before pulling the country out of deflation,’’ said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“The government must come up with a measure beyond delaying the tax hike to cease recession.’’
Nikkei’s downside
Fujito said the Nikkei’s downside would be limited around 16,500 as the GDP figures build the case for the Bank of Japan to keep easing policy.
Even with Monday’s fall, the Nikkei is up 8.8 per cent since October 31, after the BoJ announced additional easing and the Government Pension Investment Fund decided to increase its allocation to Japanese equities.
ETF buying
A trader at a foreign brokerage said investors expect BoJ to buy exchange-traded funds (ETFs) on Monday afternoon.
“Anytime the Topix is down in the a.m. session, you would think there may be some ETF buying in the p.m. session,’’ he said.
The BoJ had announced on Friday that it bought ¥38 billion of ETFs, part of its beefed-up economic stimulus campaign.
Retail stocks down
Retail stocks were weak. Takashimaya Co shed 5.1 per cent and Seven & i Holdings Co 2.2 per cent. Toyota Motor Corp dropped 0.9 per cent and Honda Motor Co 2.5 per cent.
The dollar quickly pulled back to ¥115.76 after jumping to a seven-year high of ¥117.06 on the GDP numbers. Mitsubishi UFJ Financial Group soared 3.0 per cent after announcing plans to buy back ¥100 billion of shares.
The broader Topix dropped 2.1 percent to 1,371.19, and the JPX-Nikkei Index 400 declined 2.2 per cent to 12,506.79.
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