Japan Stocks Plunge for Second Day on Yen Strength, Margin Calls

Japanese stocks plunged for a second day as investors rushed to the safety of the yen while concerns that margin calls were triggering automatic selling of shares also weighed on sentiment.

The Topix index sank 3 percent to 1,264.96 at the close in Tokyo, capping the biggest two-day loss since August and lowest close since October 2014. It pared a loss of as much as 4.4 percent in late trading. Volume on the measure was 55 percent higher than the 30-day average. The Nikkei 225 Stock Average dropped 2.3 percent to 15,713.39, triggering margin calls among retail traders. The yen traded at 114.66 per dollar, near the strongest since November 2014. Markets in Japan are closed Thursday for a holiday.

With investors reeling from the yen’s surge and the Topix’s 8.4 percent two-day plunge, the focus is on Federal Reserve Chair Janet Yellen as she testifies before the U.S. Congress on Wednesday. Markets will be parsing her commentary for clues on further U.S. rate increases amid concerns over the creditworthiness of European banks, oil’s decline and the strength of the global economy.

E-mini futures on the Standard & Poor’s 500 Index slipped 0.4 percent after the underlying equity gauge closed 0.1 percent lower on Tuesday, paring earlier losses as speculation that Deutsche Bank AG is considering buying back billions of its bonds fueled an afternoon rebound in equities.

Wednesday’s plunge sent both the Topix and Nikkei 225 below levels reached in January, which to Kubota indicates it is “highly likely we’ll keep falling”.

Source: Bloomberg