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Japan’s Topix Index Wipes Out This Year’s Advance on Yen Surge

Min Jeong Lee and Toshiro Hasegawa

(Bloomberg) -- Japan’s Topix index slumped, wiping out this year’s advance, after the yen climbed to its highest since March last year on global trade concerns and political uncertainty.

The benchmark measure fell 1.2% Tuesday, resuming trade after a three-day weekend. It is down 0.5% year-to-date and one of the worst performers among the 24 developed markets tracked by Bloomberg. The yen maintained gains after rising 1.1% against the dollar over the past four sessions and is trading around 105.28 to the dollar. The Nikkei 225 Stock Average lost 1.1% Tuesday and is still up 2.2% so far this year.

President Donald Trump said that talks with China planned for next month could be called off after the trade war escalated in recent days. Turmoil in Hong Kong and Argentina further dented sentiment. Argentina President Mauricio Macri’s stunning rout in primary elections over the weekend triggered a bout of selling in stocks, leaving much of Wall Street wondering whether the crisis-prone country was headed for yet another default.

“The yen is pretty strong,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “We’re in a situation where it’s hard to be purely optimistic.”

Asia’s second-largest economy just capped an unimpressive earnings season where companies that have reported earnings for the June quarter showed an average 0.9% decline in earnings per share, according to data compiled by Bloomberg. About 1,996 companies have reported earnings so far this season out of 2,143 companies.

“Many companies’ annual plans are based on a yen forecast of around 105 to 108 per dollar and if the yen rises to 104, market expectations for local corporate business sentiment will take another beating,” said Toshihiko Matsuno, who works in investment research and services at SMBC Nikko Securities Inc.

The average dollar-yen forecast from the nation’s large manufacturers is 109.35 for the fiscal year ending March 31, according to the Bank of Japan’s quarterly Tankan survey published earlier this year.

Sera said the global flight-to-haven assets is being exacerbated by Argentina, which is spurring concern over emerging-market risks.

Thanks to the latest sell-off, the Topix is trading less than 12 times its estimated earnings. This compares with the S&P 500 Index’s 17 times.

“A key focus will be on whether the Topix will breach its lowest level for the year of 1,462 marked on Aug. 6,” Sera said. She said economic data slated for release from China and the U.S. later this week will provide clues.

To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net;Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Naoto Hosoda, Teo Chian Wei

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