Japanese Stocks Fall Sharply as Yen Strengthens — Update

By Kosaku Narioka

Japanese stocks fell sharply as the yen strengthened following the Bank of Japan's rate increase this week and as signs of cooling U.S. economy hit shares on Wall Street overnight.

The benchmark Nikkei Stock Average was recently down 4.0% at 36588.75 on Friday morning after falling as much as 5.3% earlier. Over the past five years, the index posted a daily drop of more than 4.0% only five times at the onset of the Covid-19 pandemic in March and April 2020.

Earlier this year, the Japanese stock index soared to record highs, driven by stronger corporate earnings on the back of a weak yen, the return of modest inflation and improvements in corporate governance. A surge in chip-related stocks also helped the market's ascent.

Prospects for a scenario of earnings growth fueled by a weaker yen now seem murkier, however. The Japanese currency has been strengthening against the dollar since early July due to growing expectations for the Bank of Japan's unwinding of monetary stimulus as well as for potential rate cuts by the Federal Reserve.

On Wednesday, the BOJ raised its policy rate to 0.25% and said it would roughly halve the amount of its monthly government bond purchases by early 2026.

The yen was recently trading at around 149.53 to the dollar, compared with about 161 in early July.

A weak yen tends to lift earnings for Japanese companies, as it makes exports more competitive overseas and boosts the value of profits earned abroad in yen terms.

On Friday, makers of equipment used in semiconductor production were among biggest losers in Tokyo after Intel laid out a plan to reduce costs by more than $10 billion next year, which would require lowering capital expenditures and cutting jobs. Tokyo Electron Ltd. was recently down 10% and Lasertec was 8.5% lower.

Mitsubishi UFJ Financial Group was down 7.5% after its first-quarter net profit declined 0.4% from a year earlier partly due to higher credit costs.

Toyota Motor was 2.2% lower, adding to Thursday's 8.5% drop following its first-quarter results.

Other indexes in Asia also dropped, with South Korea's benchmark Kospi last down 2.8%, driven by sharp losses among chipmakers. Australia's S&P/ASX 200 was last 2.1% lower, sliding after a recent run of consecutive record finishes, while equities in China also started off lower, with the benchmark Shanghai Composite Index last down 0.3%.

Write to Kosaku Narioka at kosaku.narioka@wsj.com

(END) Dow Jones Newswires

August 01, 2024 22:24 ET (02:24 GMT)

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