Japan’s Nikkei Suffers Worst Week Since September on Hawkish BOJ Bets

REUTERS/Issei Kato/File Photo
Japanese national flag is hoisted atop the headquarters of Bank of Japan in Tokyo, Japan September 20, 2023.

TOKYO, Dec 8 (Reuters) – Japan’s Nikkei share average logged its worst weekly decline since mid-September after falling on Friday, driven by increasing speculation about an imminent end to decade-old Bank of Japan (BOJ) stimulus measures.

Automakers and exporters were hit by the surge in yen, eroding the value of their overseas revenue.

The Nikkei ended Friday down 1.68% at 32,307.86, taking its loss for the week to 3.36%. The benchmark index had earlier touched its lowest since Nov. 10. Still, it remains up nearly 24% this year.

The broader Topix dropped 1.5% on the day and 2.44% for the week.

The Tokyo Stock Exchange’s transport equipment subindex was the worst performer among the 33 industry groups, dropping 3.69% on Friday.

Toyota Group companies were among the Nikkei’s biggest laggards, with parts maker JTEKT dropping 4.98%, logistics arm Toyota Tsusho sliding 4.88% and Denso slumping 4.51%. Toyota Motor also fell 4.08%.

The Japanese currency surged more than 2% overnight, hitting a four-month high at 141.60 per dollar after BOJ Governor Kazuo Ueda said the central bank is considering various options to target interest rates once it withdraws short-term borrowing costs from negative territory, marking the clearest sign yet of an imminent departure from stimulus measures.

Clearly there are a lot of nerves in the market about a normalization of policy, Nomura Securities strategist Kazuo Kamitani said. However, “even if we see yen appreciation continue, the effect on corporate earnings will be pretty much nil,” limiting Nikkei declines, he added.

At the same time, predicting the yen’s movement is “extremely hard,” and a potential return to a weaker unit could propel the Nikkei to a fresh 2023 peak before year-end, Kamitani said.

Of the 225 Nikkei components, 189 dropped, 34 rose and two remained unchanged.

Bank shares outperformed on expectations of an end to ultra-low bond yields, in turn improving the outlook for returns on lending and investment. The TSE’s banking index gained 0.29%