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Business News/ Market / Stock-market-news/  Nikkei sees biggest drop in three months as recession news hits
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Nikkei sees biggest drop in three months as recession news hits

Japan's economy unexpectedly shrank an annualised 1.6% in the third quarter

Baulking at the data, investors booked profits from the outsized gains of the last two weeks. The Nikkei benchmark closed down 3% at 16,973.80, its lowest since 10 November. Photo: AFP Premium
Baulking at the data, investors booked profits from the outsized gains of the last two weeks. The Nikkei benchmark closed down 3% at 16,973.80, its lowest since 10 November. Photo: AFP

Tokyo: Tokyo stocks suffered their biggest one-day slump since August on Monday after Japan’s economy unexpectedly slipped into recession, prompting investors to book profits from recent gains.

Japan’s economy unexpectedly shrank an annualised 1.6% in the third quarter, following a sharp contraction between April and June caused by a hike in the national sales tax. Economists had seen the world’s third-biggest economy rebounding by 2.1%.

Baulking at the data, investors booked profits from the outsized gains of the last two weeks. The Nikkei benchmark closed down 3% at 16,973.80, its lowest since 10 November.

Even with Monday’s losses, the Nikkei has risen 8.4% since 30 October, as investors cheered the Bank of Japan’s additional easing, a reallocation to Japanese shares by the government pension fund, and speculation on the likely postponement of second sales tax hike.

“Until last week the market has been going up strongly. But now selling will increase, given the bad state of the economy," said Masayuki Doshida, senior market analyst at Rakuten Securities in Tokyo.

The shock GDP figures set the stage for Prime Minister Shinzo Abe to call a snap election and postpone the tax increase, slated for October 2015. Japanese media have said that Abe could announce his decision as early as Tuesday.

Market players increasingly support the delay. Growth must take precedent over bolstering Japan’s parlous finances and action must be taken to ward off the risk of declining faith in Japan among international bond markets, said Doshida.

With private consumption rising only 0.4% compared to the second quarter—only half that expected—retail shares were badly hit.

Owner of the Uniqlo clothes brand Fast Retailing Co. Ltd shedding 3.6%, accounting for over a third of the Nikkei’s losses.

Department stores Takashimaya, Marui Group Co. Ltd, and J.Front Retailing Co were also sold, sagging 5.6%, 5.3% and 3% respectively.

Also suffering was market heavyweight Softbank Corp, which shed 2.3%.

The broader Topix slipped 2.5% to 1,366.13. The JPX-Nikkei Index 400 also declined 2.5%, closing at 12,466.69. Reuters

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Published: 17 Nov 2014, 08:21 AM IST
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