It’s Japan’s turn to take the lead story.
While all eyes are focused on the FOMC policy meeting scheduled to begin Wednesday morning and the Bank of Japan meeting on Friday, Japanese stocks turned southwards Tuesday while JPY strength gained against the dollar and commodities, especially crude and copper slumped worldwide.
U.S. and Chinese stocks also tumbled on the strength of the yen which added 0.4 percent to 120.62 per dollar, increasing for a second day. The Topix index dropped 1 percent to 1,543.11 at the close in Tokyo, its first loss in three days. The Nikkei 225 Stock Average lost 0.9 percent to 18,777.04.
According to Tomoichiro Kubota, a senior analyst at Matsui Securities Co., “Given how great Japanese stocks have done through yesterday, today we’re seeing some profit taking ahead of the Fed meeting.”
Fed and BOJ Uncertainty
Analysts are uncertain as to why equities responded so bullishly and point to concern that the Fed as well as the BOJ will postpone implementing an interest rate hike in their respective countries at their next meetings. Stronger than expected industrial profits in China and growing tensions in the South China Sea are additional reasons given for the severe market reaction.
The Fed will announce its rate decision on Wednesday and futures traders are expecting not more than a 6 percent possibility of an increase. Expectation for an increase in Japan is higher when the BOJ meets on Friday, with 16 of 36 analysts surveyed predicting that the central bank will bolster monetary policy.