A measure of Japanese bank shares plunged more than 7%, the most since August, as worries about the impact of harsher-than-expected US tariffs on Japan’s economy fueled bets the central bank may pause rate hikes.
Banks were the heaviest drag on the Topix, which declined as much as 4.3% as investors turned risk-off following Donald Trump’s announcement of a 24% levy on Japan. Shares of Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. lost over 8% at one point.
The drop comes as financial shares had been outperforming the benchmark so far this year on hopes that continued interest rate hikes by the Bank of Japan would boost lenders’ earnings. But concerns that US trade policies might slow down Japan’s economy, leaving the BOJ less room to raise rates, are making the banks look less attractive.
“There’s now a higher possibility that the BOJ will suspend interest rate hikes, which is leading to pressure on bank stocks,” said Jumpei Tanaka, head of investment strategy at Pictet Asset Management. “The additional 24% tariffs on Japanese goods will have a significant impact on Japanese stocks” overall, especially those reliant on foreign demand, Tanaka added.
Japan’s overnight index swaps are now signaling a roughly 70% chance of a rate hike by September, down from around 90% on Wednesday.
Bank shares had been rising on the assumption that higher interest rates would increase their net interest margin on loans over the long-run, said Zuhair Khan, a fund manager at UBP Investments.
“In my opinion too much was actually priced in,” he said. “If there is any chance that interest rates do not rise as much as expected, or that there is a delay in when they rise, then bank stocks should go down.”
With assistance from Umesh Desai.
This article was generated from an automated news agency feed without modifications to text.
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