Nikkei dips on profit-taking after Moody’s downgrade
August 24, 2011 Leave a comment
The Nikkei share average edged lower on Wednesday as investors took profits amid caution about the long-term impact from Moody's downgrade of Japan's sovereign debt rating, offsetting earlier gains made on speculation of more easing by the U.S. Federal Reserve. Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday, blaming large budget deficits and a buildup of debt since the 2009 global recession. While stock market investors largely shrugged off the move after Moody's had warned in May it might cut Japan's rating, banks came under pressure, with some analysts citing fears about the move's impact on their holdings of Japanese government bonds. One analyst also said investor sentiment could take a hit in the short term if the Moody's move spurs other agencies to follow suit. "The Moody's downgrade may trigger further downgrades of Japan's debt by other agencies," said Takahide Kiuchi, chief economist at Nomura Securities. The benchmark Nikkei was down 0.2 percent at 8,716.76 at the midday break, after rising as high as 8,825.27 earlier. The broader Topix shed 0.2 percent to 748.67. On Tuesday, U.S. stocks surged 3 percent on speculation that Fed Chairman Ben Bernanke will signal new help for the economy when he speaks on Friday at the central bank's annual gathering in Jackson Hole, Wyoming. The meeting is widely expected to end with a controversial decision to buy hundreds of billions of dollars in U.S. government debt to try to foster a stronger recovery. Traders said that while there are hopes Bernanke will hint at some easing, foreign investors were hesitant to take large positions before the event. "For the past few days, futures players are thought to be engaged in arbitrage trading. They are trying to make profits within a 100-point range, and today it looks like they were selling when the index rose above 8,800," said a trader at a Japanese brokerage. NOT UNEXPECTED Moody's had warned in May that it might downgrade Japan's Aa2 rating due to heightened concerns about its faltering growth prospects and a weak policy response to deal with bulging public debt, now twice the size of its $5 trillion economy. "Stock market investors had somewhat expected that it could happen because Moody's had warned it might downgrade Japan's sovereign debt earlier," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. Unpopular Prime Minister Naoto Kan confirmed on Tuesday he would step down as head of the ruling party within the week. "We have major developments on the political front, and while most people in the market believe (former foreign minister Seiji) Maehara is very likely to win the (ruling party leadership) election, a swift policy response on debt problems is unlikely to come out soon," said Fujito. The Topix banking subindex was among the biggest decliners after the Moody's move, losing 0.8 percent. Sumitomo Mitsui Financial Group fell 0.8 percent at 2,192 yen in heavy trading.
Mitsubishi UFJ Financial Group dropped 2.3 percent to 334 yen. MUFG was also hit by news that the lender lost $1.8 billion from its common stock investment in Morgan Stanley so far, at least on paper, according to a regulatory filing on Tuesday. But oil-related stocks outperformed, with Inpex rising 2.2 percent to 480,000 yen and Japan Petroleum Exploration soaring 2.3 percent to 3,070 yen. Oil prices rose on Tuesday on views that the Federal Reserve might indicate fresh stimulus measures later this week, and also drew support from fighting in Libya and disrupted Nigerian exports.
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