Japanese Investors Overreact to Warning of End to Zero Interest Rates (EWJ, ITF, VPL)

by: Steven Towns

Unless you are short Japanese stocks, the Nikkei 225 Stock Average and TOPIX Index got off to a bad start this week as both tumbled, erasing gains made so far this year.

The Nikkei fell 380.17 yen or 2.34% to 15,877.66, while the TOPIX fell 42.21 points or 2.54% to 1,618.01. Foreign investor selling was said to be heavy at the outset of today's trading session. In addition, investors were worried about what negative effects the BOJ's end to its easy monetary policy might have after hawkish BOJ board member Atsushi Mizuno reiterated his stance recommending an early end to zero interest rates and warned there shouldn't be expectations of prolonged zero rates. See Gary Dorsh's post below, which shows that the BOJ and Ministry of Finance (MOF) leaders are at odds regarding monetary policy.

This may a good week to add to your position if the selling continues. As far as I'm concerned the BOJ will proceed cautiously from the new fiscal starting in April by ending its zero interest rate policy (ZIRP) but still keeping rates low enough to assuage MOF officials.

Among Nikkei 225 and TOPIX stocks that have ADRs I want to point out the following that traded lower today in Tokyo:

Mitsubishi UFJ Financial Group (ADR: MTU) -1.24%, [MTU 1-yr chart]

Nomura Holdings (ADR: NMR) -2.55%, [NMR 1-yr chart]

Trend Micro (ADR: TMIC) -4.70%, [TMIC 1-yr chart]

Advantest (ADR: ATE) -5.43%, [ATE 1-yr chart]