Japan’s Nikkei Slumps on Hawkish Fed Bets, Middle East Concerns

The Japan News

9:22 JST, October 19, 2023 (updated at 15:50 JST)

TOKYO, Oct 19 (Reuters) – Japan’s Nikkei share average closed nearly 2% lower on Thursday, tracking a sell-off on Wall Street after robust U.S. economic data fueled bets for a hawkish Federal Reserve, while mounting tensions in the Middle East also heightened risk aversion.

Chip-related shares were notable underperformers after traders took cues from U.S. peers as a spike in long-term Treasury yields to 16-year peaks weighed on the so-called growth stocks.

The Nikkei finished the day 1.91% lower at 31,430.62, close to the session low of 31,399.17, a level last seen on Oct. 10. Of its 225 components, 179 fell versus 44 gainers.

Heavyweight chip-making equipment maker Tokyo Electron dropped 4.7% to be the biggest drag on the Nikkei. Chip-testing equipment maker Advantest slumped 3.4%. Shares of Screen Holdings tumbled 5.9%.

The broader Topix lost 1.36%.

Overnight, U.S. data showing single-family homebuilding rebounded in September fueled the prospects of higher-for-longer rates. The 10-year U.S. Treasury yield pushed as high as 4.968% on Thursday.

On the geopolitical front, U.S. President Joe Biden flew out of Israel following a less than eight-hour visit, while protests flared around the Middle East in the aftermath of a deadly explosion at a Gaza hospital.

“The level of uncertainty is high, making it difficult to buy dips” in stock prices, said Mitsunari Akino, a director at Ichiyoshi Asset Management.

A 5% U.S. long-term yield “has come into sight,” unnerving investors, he said. “Fundamentals are not bad, but it’s a ripe environment for a spike in volatility.”

A gauge of Nikkei volatility climbed back toward the nearly four-month high reached at the start of this month.

Automakers were among other notable losers, with Mitsubishi Motors diving 4.9%, Nissan slumping 2.5% and Toyota slipping 0.9%.

At the other end, rail operators led the few gainers, with Keio Corp rallying 2.4% and Odakyu Electric Railway gaining 1.9%.