Nikkei Falls from Record High as Yen Strengthens on BOJ Policy Shift Expectations

Japan’s Nikkei share average reversed course on Thursday, slipping from a record high to trade lower. This decline coincides with a strengthening yen and growing anticipation that the Bank of Japan (BOJ) will abandon its negative rate policy this month.

The Nikkei initially mirrored gains from Wall Street, reaching a record peak of 40,472.11. However, by 0213 GMT, the index had shed those gains entirely, falling 0.77% to 39,780.07. The broader Topix index also followed suit, dipping 0.15% to 2,726.56.

Investors’ shift to selling, particularly in chip-related and technology shares, is attributed to profit-taking as the yen appreciates in response to news regarding a potential BOJ policy change. Shigetoshi Kamada, general manager at the research department at Tachibana Securities, linked the selling to the yen’s strength and speculation surrounding the BOJ’s policy adjustments.

Momentum is building for the BOJ to potentially end negative interest rates as early as this month. This potential shift comes amidst upcoming annual wage negotiations, which are expected to result in significant pay raises for the second consecutive year.

BOJ board member Junko Nakagawa expressed confidence in the economy’s progress towards achieving the central bank’s 2% inflation target in a sustainable manner. Her comments follow a report from Japan’s Jiji Press, published the prior day, suggesting that some BOJ board members are likely to advocate for raising negative interest rates during their policy meeting this month.

The dollar weakened to a near one-month low of 148.94 in early Asian trade on Thursday.

Chip-testing equipment maker Advantest led the decline on the Nikkei, falling 3.49%. Chip-making equipment maker Tokyo Electron followed closely behind, dropping 3.03%.

Financial shares, however, defied the downward trend. Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group rose 0.44% and 1.28%, respectively.

Overall, out of the 225 Nikkei constituents, 93 stocks advanced, while 130 declined, with two remaining unchanged.