Tokyo shares closed sharply lower Tuesday, as oil prices resumed their downward slide and expectations for another round of stimulus by the Bank of Japan faded. Energy-linked firms took a hit as crude fell back below $30 a barrel and the brief rally at the end of last week gave way to long-running concerns about a global crude supply glut, weak demand and overproduction.
"Investors tend to see the decline of oil as a direct indication of slower global growth and weakness in emerging market economies," Toshihiko Matsuno, chief strategist at SMBC Friend Securities, told Bloomberg News. "This is making the overall atmosphere worse." The benchmark Nikkei 225 index at the Tokyo Stock Exchange tumbled 2.35 percent, or 402.01 points, to close at 16,708.90, ending a two-day rally.
The broader Topix index of all first-section shares shed 2.33 percent, or 32.40 points, to finish at 1,360.23. A bloodletting on major bourses since the start of the year has fuelled talk that policymakers will step in to provide support. First up is the Federal Reserve, and while it is expected not to ease monetary policy - having lifted interest rates just last month - dealers will be poring over what it has to say about the recent world-wide volatility.
Then on Friday the Bank of Japan wraps up its first policy meeting of the year. Analysts are divided on the likelihood of more action after governor Haruhiko Kuroda moved at the weekend to temper talk of a stimulus increase. However, in an interview with Bloomberg in Davos, Switzerland, Kuroda said the BoJ was ready to act "if the underlying inflation trend is seriously affected". Marcel Thieliant from research house Capital Economics said: "The recent strengthening of the yen and the plunge in the Nikkei were similar in magnitude to last summer, when the bank decided to stay on hold. "A slowdown in underlying inflation will be needed to convince policymakers that more easing is required."
On currency markets, the yen strengthened - a negative for the profitability of Japanese exporters - as investors sought safer assets In afternoon trading, the dollar bought 117.97 yen, down from 118.33 yen in New York. In share trading, energy explorer Inpex dived 4.31 percent to 978 yen, while petroleum giant JX Holdings was down 1.44 percent to 431.7 yen. Toyota dropped 2.86 percent to 6,629 yen, Sony fell 4.26 percent to 2,430 yen, banking giant Mitsubishi-UFJ Financial Group tumbled 3.71 percent to 604 yen, while Uniqlo-operator Fast Retailing, a market heavyweight, was off 2.32 percent at 36,990 yen.
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