Stocks Slide in Japan as Fears Persist on Yen : Markets: In Germany, expectations of an interest rate cut drive yield down on benchmark bonds.
Japanese stocks fell Monday, hit by continuing fears that the yen’s strength against the dollar may hold, driving down futures. But the market partially recovered later in the day.
In Germany, yields fell on expectations of an interest rate cut. Most markets worldwide traded thinly due to holidays in the United States and Britain.
The 225-share Nikkei average lost 120.22 points, or 0.77%, to close at 15,574.03. It had been down more than 200 points in early trading.
Tim Shanagher, head of sales at Schroder Securities, noted that the yield gap between Japanese government bonds and stocks is at a three-year low, an encouraging sign for stocks. “But the problem is that domestic investors are obsessed with charts at the moment,” he said.
Japanese stocks were dealt a further blow by the flood of sell orders that inundated the Nikkei 300 investment fund, newly listed Monday morning.
Chief among reasons for the gloom in Japan is a growing fear that the yen will stay at its current high level or appreciate even further, which could dampen any profit rises this year.
Last year appears to have been better than some analysts feared in Japan. Average profit at non-financial listed firms rose 8.1% in the 1994-95 fiscal year ended March 31, according to a survey by major financial daily Nihon Keizai Shimbun. This was despite a 0.5% dip in sales, it said. But for all industries, including the financial sector, current profits dipped 4.1% on a sales decline of 0.7%.
Forecasts for this fiscal year are for higher overall profits on virtually flat sales. Such forecasts, however, assume a yen considerably weaker than the current level of about 82 or 83 to the dollar.
In Germany, expectations of lower inflation were fueled on Sunday when Bundesbank board member Edgar Meister told a radio station that the strong mark will help push inflation lower, possibly to under 2% by year’s end.
“More and more people are coming to the view that the economy is slowing and the Bundesbank is going to lower interest rates,” said James Mitchell, analyst at Deutsche Bank in London.
On Monday, the German benchmark 10-year bond yield fell to 6.66% from 6.69%.
The last cut in German interest rates came on March 30, when the Bundesbank lowered the benchmark discount rate by half a point to a six-year low of 4%. Expectations of another cut were heightened last week after the dollar stumbled against the mark and the government reported that the German inflation rate fell to 2.1% in May, the lowest in 6 1/2 years.
German stocks finished slightly lower Monday. The 30-share DAX index closed down 10.46 points at 2,067.41.
In other markets:
* The U.S. dollar dipped early Monday but recovered after heavy dollar buying by Japan’s central bank. In late trading it was at 83.14 yen, above its level late Friday in New York of 82.65.
* The Mexican Bolsa closed with a slight gain Monday, up 10.19 points to 1,969.69.
* Canadian stocks closed up, as recent increases in newsprint prices and a strong earnings outlook helped lead shares of paper and forest products companies higher.
* Taiwan stock prices rose sharply as speculators engaged in hectic bargain hunting on financials in an attempt to halt the market’s recent falls, brokers said.
