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Buy the dip? Last night's 2.4% dive brought the Nikkei lower by about 7% for the week - it's worst 5-day stretch since the 2011 earthquake and tsunami. The index is now off about 14% YTD.
Maybe not helping is April 1's boost in the sales tax to 8% from 5%. The last previous sale tax boost in 1997 proved to be a rally-killer. "2014 is not 1997," says JPMorgan's Jesper Koll. "The probability of success is better than ever." We shall see.
As expected, the Bank of Japan has left its key interest rate at 0.1% and maintained its program of expanding the monetary base by ¥60-70T ($580-680B) a year.
The BOJ refrained from further easing and maintained its optimism about the economy despite concerns about the impact of a rise in sales tax that took effect last week.
The "economy is continuing to recover moderately...albeit with some fluctuations due to the consumption tax hike," the bank said.
Japan's current account swung back to a surplus for the first time in five months in February, with the number coming in at ¥612.7B from a record deficit of ¥1.59T in January, although the surplus was lower than consensus of ¥628B. There have been fears that the deficit could become permanent, which could weaken confidence in Japan's massive debt.
The Nikkei closes -1.4%, while the USD-JPY is -0.3% at ¥102.80. (PR)
Asian shares have traded mixed in a choppy session in which the Nikkei recovered to close up 1% after falling earlier in the day. Market players pointed to reinvestment by a public pension fund and short-covering as reasons for the reversal.
The Shanghai Composite fell 0.8% and the Hang Seng 0.2% as tech stocks took a beating following a bad debut on Wall Street for "Candy Crush" developer King Digital.
The current-account deficit increased to a record ¥1.59T ($15.4B) in January from ¥638.6B in December. (PR)
"Capital spending remains weak and exports are not coming back to strengthen the recovery, and without support in these areas, Japan's economy is going to contract significantly in the second quarter," says economist Yoshimasa Maruyama. "The negative effect from the (upcoming) sales tax rise could be worse than the BOJ and government expect."
The Nikkei is -0.9%, while the USJ-JPY is -0.1% to ¥103.12.
Japanese industrial production grew at the fastest pace since June 2011 in January, jumping 4% on month after a drop of 0.9% in December and surpassing consensus of +3%. Soaring production of transport equipment and machinery helped to boost output
Construction orders surged 15.2% on year vs +4.9% previously.
Retail sales leapt 4.4% vs +2.5% in December and expectations of +3.8%. On month, sales +1.4% vs -1.2% previously.
Overall household spending +1.1% vs +0.7% prior and forecasts of +0.2%.
The strong figures are not a total surprise, as a bump in economic activity has been expected ahead of a rise in sales tax in April, which is forecast to then drag on the economy.
Meanwhile, core inflation, which excludes food prices, held steady at 1.3% on year in January, above consensus of 1.2%.
Core core CPI, which excludes food and energy, stayed at a 16-year peak of 0.7%.
Overall inflation slipped to 1.4% from 1.6% in December.
The unemployment rate stayed at 3.7%, as expected, although the number of open positions increased to 1.04 for every person seeking work, the most since August 2007.
The Nikkei falls 0.55%, while the USD-JPY is -0.4% at ¥101.70.
The Nikkei gained 2.9% last night. DXJ +1.1% premarket
¥2.6T in QE later, William Pesak notes one year of aggressive monetary ease has failed to lift living standards, nor has it convinced companies to boost paychecks. The only inflation Japan is feeling is the kind no one likes: Higher energy prices.
BOJ Governor Kuroda's main achievement this year, argues Pesak, is to settle once and for al that the country's problem isn't the amount of yen sloshing around, but how it's used. Unless people borrow and banks lend, the economy won't revive. And don't forget the secular deflationary forces of an aging population and the rise of China.
The Bank of Japan has surprised markets by expanding lending facilities that are designed to spur corporate investment by offering low-interest loans to commercial banks in the hope that they will lend the money to businesses.
At a policy meeting, the BOJ doubled one program to ¥7T ($68B) and said individual banks could borrow twice as much under another facility.
The BOJ also maintained its program of increasing the monetary base by ¥60-70T a year.
The boosting of the lending facilities comes after data yesterday showed that Q4 GDP grew a less-than-expected 0.3%. Notwithstanding, the BOJ maintained its view that Japan is recovering moderately.
The move helped weaken the yen and the Nikkei to surge 3.3%. The USD-JPY is +0.6% at ¥102.57. (PR)
Japanese GDP growth slowed to 0.3% on quarter in Q4 from 0.5% in Q3 and missed consensus of 0.7%.
Annualized GDP softened to +1% from +1.1% and undershot forecasts of +2.8%.
The GDP deflator, "which measures the change in prices of final goods and services and is considered as a key indicator for inflationary pressures," fell to -0.4% on year from -0.3%.
Industrial production +0.9% in December vs -0.1% in November and consensus of +1.1%. On year, output +7.1% vs +4.8%.
Capacity utilization +2.2% vs -0.5%.
Japan's Q4 economic performance was kept down by strong import growth, which is a negative factor in GDP calculations, and a limited increase in exports.
Imports +3.5% on quarter, exports +0.4%, business investment +1.3%, consumer spending +0.5%.
The soft growth adds to pressure on Prime Minister Shinzo Abe to detail reforms that will make Japan more competitive. This is especially the case with the upcoming rise in sales tax in April.
"This weak export performance gives us a sense of risk that the Japanese economy may significantly stall after April," says economist Takuji Okubo. "Abe really needs to be quick in showing to the market that he can deliver reform."
The data comes a day before the Bank of Japan is forecast to leave its monetary policy unchanged.
Despite the disappointing GDP, short covering helped the Nikkei end +0.6% following a day of choppy trading.
Japan's core machinery orders, a leading indicator of capital expenditure, plunged 15.7% on month in December, with the fall far greater than expectations for a drop of 4.1%.
On year, orders +6.7% vs consensus of +17.6%.
Moreover, companies have predicted that core orders will drop 2.9% in January-March, which would be the first decline in four quarters.
"Today’s data on machinery cast some doubts on whether the fledgling recovery in business investment will continue," says economist Marcel Thieliant. The government has targeted increased capex as an important element in Japan's battle to end deflation.
However, it's worth noting that the data is volatile and the big drop followed a gain in November.
The USD-JPY is -0.2% at ¥102.46, while the Nikkei is +0.6%.
Not everyone is spooked by the selloff in Japanese equities; with improvement in the economy and rising profits from companies including Panasonic, Toyota, Honda and Hitachi, efforts by Prime Minister Abe to kick-start growth after a long period of deflation are starting to pay off, Japan bulls say.
But currency moves overwhelm everything else and are seldom driven solely by domestic factors; the yen has been pushed up as part of a risk-off move as managers attempted to repatriate their money out of emerging markets.
Japanese basic wages adjusted for inflation dropped to 98.9 on a Labor Ministry index in 2013, matching the level of 2009.
The fall stands in contrast to the government's efforts to encourage companies to increase salaries in order to strengthen the Bank of Japan's battle against deflation.
The data came as business and union leaders started this year's salary negotiations. "Each company will do their utmost to increase wages depending on their earning situation," said Hiromasa Yonekura, the head of Keidanren, Japan's largest business lobby.
The USD-JPY is -0.35% at ¥101.29, while the Nikkei closed +1.2% after falling sharply over the past few sessions.
Dollar/yen is ahead 0.3% to ¥101.26 after plunging below ¥101 yesterday amid the rout in stocks in the West. The dive was felt in the overnight trading session in Japan where the Nikkei plunged 4.2%, bringing its losses to what can be considered a crash-like level of 15% in a month.
Putting the 15% dive in perspective, the Nikkei was last at this level at the start of November. If January's move is a crash, than the move at the end of the year was a blow-off top.