Japanese Stocks Drop as Political Worries Weigh on Financials
Japanese stocks fell, led by banks, as uncertainty around the fate of Prime Minister Shigeru Ishiba damped expectations of a near-term rate hike by the central bank.
The broader Topix Index slid 1.1% to 3,048.89 as of market close in Tokyo, with the blue-chip Nikkei 225 down 0.9% to 41,938.89.
Banks weighed most heavily on the Topix, amid speculation that the Bank of Japan will delay its next interest rate hike if the ruling Liberal Democratic Party holds a leadership election. The benchmark’s subindex of lenders fell 3.2%, the most in a month.
Political jitters ramped up after LDP Secretary-General Hiroshi Moriyama, Ishiba’s key power broker, said he intends to step down Tuesday. Local media reported that other senior LDP members, including policy chief Itsunori Onodera, are also intending to quit. Taro Aso is set to call for an early party election, according to a Mainichi report.
Read: Japan’s Long Bonds Join Global Slide as Politics Adds to Jitters
“Many investors had been expecting a rate hike in September, but if politics become unstable, that will be unlikely,” said Shinichi Tamura, an analyst at Okasan Securities.
The lower likelihood of an interest rate hike boost for banks has disappointed investors, leading many to lock in profits from the financial sector, Tamura said. Insurers’ shares were also weak.
The yen weakened as much as 1.2% against the dollar on Tuesday evening after Moriyama’s announcement. It was trading around 148.60 to the dollar as of 3:30 p.m.
Read: Japan PM’s Power Broker Intends to Quit Over Election Setback
“Traders are seeing uncertainty building around the political outlook for Japan, which is jacking up volatility,” said Anna Wu, cross-asset investment strategist at VanEck in Sydney.
A fall in big-cap US tech stocks Tuesday, including Nvidia Corp., also soured sentiment, after the US revoked Taiwan Semiconductor Manufacturing Co.’s authorization to freely ship essential gear to its main Chinese chipmaking base.
“US tech stocks are losing steam,” which is likely to offset any potential boost for Japanese equities from the weaker yen, said Wu. “The entire market is feeling a chill.”
Source: Bloomberg
