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Japan Stocks Plunge 6.4 Percent to Enter Bear Market

Japan Stocks Plunge 6.4 Percent to Enter Bear Market
A man looks at the update of the Nikkei stock rate on an electronic board in Tokyo on June 13.

Thursday, 13 June 2013 07:09 AM

U.S. markets rose Thursday as positive economic data helped steady investor nerves after Japan's main stock index plunged into "bear market" territory. European markets were mixed.

Japan's Nikkei fell 6.4 percent to close at 12,445.38, a drop of 21 percent from its high in May. When an index falls by more than 20 percent from a high, it is commonly defined as a bear market.

Analysts said speculators are fleeing the Nikkei after the Bank of Japan's decision earlier in the week to refrain from additional monetary easing measures.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

European stocks initially fell sharply in reaction to the losses in Japan and after the World Bank cut its forecast for global growth in 2013 to 2.2 percent from 2.4 percent.

But they recovered, and Wall Street traded higher, after U.S. Commerce Department figures showed retail sales rose 0.6 percent in May, the strongest showing in three months.

IG Markets strategist Alastair McCaig said markets were also helped by a fall in unemployment benefit applications, which came in at 334,000, near five-year lows.

"Like almost all the major global indices, the Dow, S&P 500 and NASDAQ have all had a negative few weeks of trading, but... as at this stage it appears more like U.S. markets have blown some of the froth off the top rather than changed sentiment," he said in a note.

By mid-morning in New York, the Dow Jones Industrial index was up 0.3 percent, rising above the 15,000 mark to 15,045.40, while the S&P 500 index rose 0.4 percent to 1,619.44.

Britain's FSTE 100 gained 0.1 percent to 6,304.63 and France's CAC-40 was up the same percentage to 3,797.98. Germany's DAX closed 0.6 percent lower at 8,095.39.

Among notable losers in Europe was Royal Bank of Scotland, PLC, down 3.3 percent on the news CEO Stephen Hester will resign and the bank will cut 2,000 jobs.

Market sentiment has worsened generally since the chief of the Federal Reserve, Ben Bernanke, said the central bank might pull back on its $85 billion-a-month bond-buying program — known as quantitative easing — if U.S. economic data, especially hiring, improves.

"Ever since talk of Fed tapering was first mentioned U.S. bond yields have edged higher and money has leaked out of emerging markets and emerging market currencies," said market analyst Michael Hewson of CMC Markets.

Investors now expect some reduction in the Fed's monthly asset purchases sometime this year. Fed stimulus has been one of the main reasons why many assets, such as global stock markets and emerging markets, have rallied in recent months.

Analysts said markets will likely remain on edge until next week's Fed policy meeting for greater clarity on the timing and extent of any tapering.

"Mr Bernanke is riding a tiger he dare not dismount" for fear of disrupting the global recovery, said Stephan Lewis of Monument Securities.

Juichi Wako, equity market strategist at Nomura Securities Co. in Tokyo, said the drop on the Nikkei was due to a reversal of the money flow that had flooded Japan in recent months, partly on inflated hopes for "Abenomics," as Prime Minister Shinzo Abe's fiscal and monetary policies have been dubbed.

In April, the Bank of Japan announced a massive stimulus in an attempt to encourage economic growth and get inflation up to 2 percent. The euphoria drove the Nikkei up to five-year highs, briefly.

Excitement is now ebbing, Wako said, and the yen is strengthening — a headwind for Japanese exporters.

The dollar weakened sharply against the yen, to 94.42 yen from 95.71 yen the day before.

Elsewhere in Asia, the Hang Seng index fell 2.2 percent to 20,887.04, while the Kospi in South Korea lost 1.4 percent to 1,882.73.

Mainland Chinese were pummeled as accumulating signs of a slowdown in growth in the world's No. 2 economy caused investors to retreat. The Shanghai Composite Index slid 2.8 percent to 2,148.36, its lowest close in six months.

In other markets, the euro dropped to $1.3317 from $1.3331 late Wednesday, while the benchmark crude oil contract was down 5 cents to $95.83 per barrel in electronic trading on the New York Mercantile Exchange.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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Thursday, 13 June 2013 07:09 AM
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