(Bloomberg) — Japanese stocks sank deeper into the red on Friday, with the Topix index tumbling into a technical correction as it led Asian equities lower for a second day.
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Investors continued to bail out of riskier assets that will be hurt by US tariffs, with a rally in government bonds sending yields sharply lower and traders slashing bets that the Bank of Japan will raise interest rates again this year.
The yen swung in choppy trading while holding onto the gain of more than 2% that it made on Thursday after US President Donald Trump announced wide-ranging duties on trading partners around the world, including 24% on Japan.
The exporter-heavy Nikkei 225 Stock Average, which entered a technical correction Thursday, closed 2.8% down. The Topix slide 3.4% and a subindex of banking shares slumped 8.4% as the prospect of fatter margins on loans evaporated.
“A combination of stiff tariff levels and the surging yen spell bad news for the Nikkei,” said Tim Waterer, chief market analyst at KCM Trade.
The 10-year sovereign bond yield dropped around 20 basis points to as low as 1.16%. A surge in Japanese bond futures saw them post the biggest weekly gain since 1987.
BOJ Governor Kazuo Ueda said uncertainties around the economy have risen. Government officials also expressed concern, with Prime Minister Shigeru Ishiba calling the tariffs a “national crisis” ahead of a rare meeting with opposition leaders to discuss a unified response.
Markets are also being hurt by receding hopes that levies may be lowered quickly through negotiation.
“Unless Japan comes up with measures to reduce the trade surplus with US drastically, Trump may not review tariffs. That’s going to be quite a high hurdle,” said Takahide Kiuchi, executive economist at the Nomura Research Institute.
Among bank stocks, Mizuho Financial Group Inc. lost 11% and Mitsubishi UFJ Financial Group Inc. dived 8.5%. The Topix’s bank index has lost 24% from a peak hit just two weeks ago, and saw its biggest two-day drop since August over Thursday and Friday.
The growing possibility that the central bank may have to alter its rate hike policy is creating “uncertainty around the outlook for exchange rates and economic conditions, fueling a widespread risk-off mood,” said Chihiro Ohta, senior strategist at SMBC Nikko Securities Inc.
