Japan's economy contracted sharply in the second quarter after a national sales tax in April rose 3% and triggered a sharp decline in consumer spending.
Real gross domestic product shrank 6.8% in the three months through June on an annualized basis from the prior quarter.
Prime Minister Shinzo Abe will have to address the tax issue again soon. A sales tax increase (which will raise the rate to 10%) has been approved by the Japanese government and will take effect in October 2015.
Also helping to boost the Nikkei to a 2.4% bounce overnight following a 3% plunge on Friday was a report on the Government Pension Investment Fund temporarily removing a cap on domestic stock investment.
The action enables the massive GPIF to allocate more funds to Japanese stocks ahead of the upcoming official review at which it's likely to be allowed to raise its goal for equities to 20% of the portfolio from the current 12%. "[It's] a surprise for the market in that they are going to increase their stock holdings sooner," says a local equities strategist.
Japanese stocks gained heavily this morning, posting their largest daily jump in four months. Easing tensions in Ukraine, and exporters on the rise due to the yen stepping back from its sharp gains last week - both contributed to the rise.
The Nikkei recouped most of its steep losses from Friday, soaring 2.4% to 15,130.52 - its largest daily percentage gain since mid-April. The Topix climbed 2% to 1,252.51, while the JPX-Nikkei Index 400 gained 2.1% to 11,402.48.
The Nikkei capped a tough week, falling 3% overnight with Obama's ordering of airstrikes in Northern Iraq a convenient excuse for the decline.
Today's session also happens to be the busiest earnings report day of the season and Nikon Corp. tumbled 9.4% after lower full-year guidance, Taiyo Yuden dove 8.9% after cutting its outlook, and Nisshin Steel plunged 9.8% after profit fell 99%.
The BOJ maintained its pledge to boost the monetary base by ¥60T-¥70T.
The dollar is weaker vs. the yen by 0.25%, with dollar/yen down to ¥101.83.
Japanese stocks fell to a more than one-week low this morning, with financials and sea transporters leading the losses, as investors turned risk averse due to the last week's U.S. stock sell-off and concerns over Argentina's default and Portuguese banking problems.
Japanese equities still drew some support from hopes of an improvement in domestic corporate earnings, as well as solid Asian shares and a stable currency market.
The Nikkei sank 0.3% to 15,474.50, its lowest close since July 25, extending losses for a third straight trading day. The Topix shed 0.4% to 1,276.19, while the JPX-Nikkei Index 400 dropped 0.3% to 11,620.36.
Dan Loeb's Third Point hedge fund is renewing a bet on Argentine government debt, expecting the country will reach a deal with creditors to resolve claims from its 2001 default by the end of the year, and is taking a stake in state-controlled oil company YPF (YPF +5.2%).
"We are in the midst of a critical inflection period for the country: If the government settles with its hold-out creditors, Argentina will regain access to global capital markets,” according to the hedge fund's Q2 letter to investors.
Third Point says Japan has been the biggest source of losses this year, but the firm is still finding opportunities in the country and expects macro conditions that have been headwinds to become more favorable toward the end of the year.
Earlier: YPF pops as Third Point is said to increase stake.
Japanese shares fell to a one-week low today and dropped to their largest one-day fall in three weeks after investors turned risk averse due to the downed Malaysian Airlines passenger jet shot down over Ukraine's eastern border.
The Nikkei sank 1% to 15,215.71, its lowest close since July 11. The index also fell 1.7% at one point during Friday's trading.
The Topix shed 0.8% to 1,263.29 at the close of trading in Tokyo. JPX-Nikkei Index 400 dropped 0.7% to 11,505.50.
The WisdomTree (WETF -1%) Japan Hedged Equity Fund (DXJ +0.4%) has seen $2.2B in outflows this year, including withdrawals of $490.4M on July 11 alone, according to Bloomberg.
It doesn't mean investors/traders don't want to bet on Japan; just that - with volatility all but vanishing from forex - they're not interested in hedging. By contrast, the iShares MSCI Japan ETF (EWJ +0.2%) - not hedged at all - has seen nearly $1B in inflows. "Most ETF buyers are not long-term investors and they’re betting the dollar-yen won’t move much in three to six months," says a Tokyo-based analyst with BNP Paribas.
It was 2013, when the DXJ took in a whopping $9.8B as Japanese stocks rallied hard and the yen fell just as sharply.
Japanese shares rose to a five-month high today, after a positive survey on Chinese manufacturing added to gains caused by the Fed's dovish monetary policy. The Nikkei climbed 0.1% to 15,369.28, its highest close since January 29. The benchmark has risen almost 10% since the end of May.
The Topix also rose 0.1% to 1,267.48 at the close of trading in Tokyo, with 1.96B shares changing hands. JPX-Nikkei Index 400 fell 0.1% to 11,537.06.
Japanese shares rose today, with the Nikkei climbing 0.3% to 14975.97, after dropping 1.1% on Monday, although trading volume hit its two month low amid escalating tensions in the Middle East and Ukraine.
The Topix rose 0.3% to 1,238.20 at the close of trading in Tokyo, with 1.68B shares changing hands. JPX-Nikkei Index 400 also ended up 0.3% at 11,275.02.
Dollar/yen slid back 0.1% to ¥101.91, after rising 0.2% yesterday.
As last week made clear, central banks in Europe and Japan are getting more aggressive while the Fed moves in the opposite direction, says the chief investment strategist for BlackRock.
Implications: 1) Global interest rates are likely to stay low even as the Fed pulls back; 2) The dollar (UUP, UDN) is likely to strengthen; 3) ECB and BOJ liquidity, while maybe providing a boost to U.S. stocks, is almost certainly going to add a big lift to European and Japanese equities, and U.S. investors should consider boosting holdings of both.
Asian stocks hit their highest levels in nearly three years today, after the Dow and S&P 500 ended at new records on Friday. The Nikkei stock average is up by over 0.3%, and MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS is also up about 0.3%, after reaching its highest levels since July 2011.
Other data today has shown Japan's economy growing 1.6% in January-March from the previous quarter, which revised preliminary data showing 1.5% growth.
The yuan rose after the People's Bank of China unexpectedly fixed its daily midpoint higher against the dollar for the second straight session, leading to an additional rise in other Asian currencies.
The Government Pension Investment Fund should announce a reshuffling of assets in which, predicts Nomura, it would sell as much as $200B in domestic bonds to buy overseas assets. The team at Nomura sees the move as weakening the yen about about 10%.
If done at the right time, says Mitsubishi UFJ's Daisaku Ueno, dollar-yen could top ¥110 this year (¥102 at the moment).
A Bloomberg survey sees the fund cutting its local bond holding from 60% to 40%, and boosting its targets for foreign stocks to 17% and 14% (from 12% and 11%, respectively).
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