Nikkei 225 Slides on US Dollar Slump

A weaker US dollar was crucial in driving Japanese equities lower on Wednesday with the Nikkei 225 index at 12-day lows.

International influences had a very important Nikkei 225 impact with Fed Chair Yellen’s comments crucial and undermined Japanese stocks through the currency effect. Yellen was significantly more dovish than expected in Tuesday’s comments with concerns over the global outlook and domestic inflation developments. US equity markets moved higher with the S&P index at 2016 highs, which helped underpin global equities.
The principal consequence of Yellen’s comments was a sharply weaker dollar with losses across the board as expectations of higher interest rates were scaled back. The USD/JPY had already drifted weaker from highs around 113.80 and then fell sharply with lows close to 112.20 in Asian trading on Wednesday. The stronger yen was important in pushing Japanese equity prices lower with key exporters inevitably coming under pressure.
Gains for regional bourses and an overall improvement in risk appetite were significant in preventing further losses for the Nikkei index.
Shares in oil companies were weaker due to lower oil prices, although prices did recover from Tuesday lows while there were heavy losses for shipping companies. Takata Corp fell close to 20% due to further concerns over defensive airbag inflator recalls.
The economic data was also weaker than expected with a 6.2% decline in industrial production for February following a 3.7% gain the previous month.
After opening lower, the Nikkei 225 attempted to rally during the morning session and was close to erasing losses before sellers stepped in once again. A further bout of yen strength triggered fresh losses following the break and there was steady selling into the close with net daily losses of 224.o6 points and 1.3% to 16879.0. The wider Topix index lost 1.6% at 1,356.3 with all sub-indices in negative territory.
There will be the risk of very choppy trading conditions over the next few days with the Japanese fiscal year-end on Thursday, which is liable to trigger last-minute position adjustment. The Friday US employment report will also have an important market impact. Markets will monitor Bank of Japan actions closely given pressure to weaken the Japanese currency.