Nikkei jumps after surprise BOJ easing; real estate stocks outperform

Japan’s Nikkei share average soared to more than a two-week high Friday after the Bank Of Japan unexpectedly eased monetary policy further by introducing a negative interest rate policy.

The Nikkei ended 2.8 percent higher to 17,518.30, the highest closing level since Jan. 13. Earlier, it dipped into negative territory at one point as investors digested the implications of the new policy for the banking sector.

For the week, the benchmark index rose 3.3 percent, while it fell 7.96 percent for the month, the biggest monthly drop since last August.

On the broader market, 4.125 billion shares changed hands on the Tokyo Stock Exchange’s First Section, 90 percent more than the daily average of around 2.2 billion shares.

Daily turnover spiked to 4.3 trillion yen as well, compared with an average of 2.5 trillion a day.

The BOJ said it was adopting an interest rate of minus-0.1 percent, adding that it would charge interest for excess reserves financial institutions park with the central bank. The BOJ said it would cut interest rates further into negative territory if necessary.

The banking subsector was the only one of the Topix’s 33 subsectors that was not in positive territory. The real estate subindex jumped 9.5 percent, with Mitsubishi Estate Co soaring 10 percent, Mitsui Fudosan Co surging 8.9 percent and Sumitomo Realty & Development climbing 12 percent.

Securities shares also outperformed, with Nomura Holdings Inc rising 6.4 percent and Daiwa Securities Group gaining 8.4 percent.

Bank shares were hammered as negative interest rates will eat into their interest revenues. Mitsubishi UFJ Financial Group fell 2.8 percent, Sumitomo Mitsui Financial Group dropped 1.7 percent, and Japan Post Bank dived 6.7 percent.

The decision came as a surprise for the market with BOJ Governor Haruhiko Kuroda saying as recently as last week that the bank was not thinking of adopting a negative interest rate policy.

Battered by falling oil prices and fears of slower economic growth in China, the Nikkei has fallen 8 percent so far in 2016, slipping to a 14-1/2 month low of 16,017.26 last week, broadly in line with the recent global selloff.

“If the BOJ did not do anything amid market turmoil while it is unlikely to achieve a 2 percent inflation target under Kuroda’s term, it would have sent a message to the market that the central bank is not willing to counter deflation,” said Kyoya Okazawa, head of global market & commodity derivatives at BNP Paribas.

After the announcement, the dollar jumped by more than 2 percent against the yen at one point to 121.495 yen, the greenback’s highest level in more than a month.

“Investors have had a hard time assessing what the BOJ’s announcement means for the Japanese economy. After all, the market cheered the BOJ’s decision as a weak yen is positive for Japan Inc,” said Takuya Takahashi, a strategist at Daiwa Securities.

Exporters gained ground, with Toyota Motor Corp rising 4.6 percent, Honda Motor Co soaring 2.7 percent and Nissan Motor Co surging 7.1 percent.

The Topix soared 2.9 percent to 1,432.07, and the JPX-Nikkei Index 400 surged 3.0 percent to 12,917.43.

Source: Reuters