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Japan’s Nikkei Retreats from 5-Month Peak, Set to Rise Nearly 20% for Year

A pedestrian walks past an electronic board showing the closing numbers on the Tokyo Stock Exchange, with graphs illustrating the daily movement (L) and for the last 12 months (R), along a street in central Tokyo on December 30, 2024. (AFP)
A pedestrian walks past an electronic board showing the closing numbers on the Tokyo Stock Exchange, with graphs illustrating the daily movement (L) and for the last 12 months (R), along a street in central Tokyo on December 30, 2024. (AFP)
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Japan’s Nikkei Retreats from 5-Month Peak, Set to Rise Nearly 20% for Year

A pedestrian walks past an electronic board showing the closing numbers on the Tokyo Stock Exchange, with graphs illustrating the daily movement (L) and for the last 12 months (R), along a street in central Tokyo on December 30, 2024. (AFP)
A pedestrian walks past an electronic board showing the closing numbers on the Tokyo Stock Exchange, with graphs illustrating the daily movement (L) and for the last 12 months (R), along a street in central Tokyo on December 30, 2024. (AFP)

Japan's Nikkei share average retreated from the previous session's five-month high on Monday, the last trading day in 2024, as investors locked in profits on a market set to be up a fifth for the year.

The Nikkei had fallen 0.75% to 39,979.68 by the midday break, after opening 0.11% higher. It ended at a five-month closing high on Friday after a three-session winning streak.

The index is up 19.5% so far this year, putting it just behind Pakistan and Taiwan for the year.

The broader Topix was down 0.42% to 2,789.98.

"Investors sold stocks today because they could not find clear reasons for the Nikkei to cross the 40,000 levels," said Fumio Matsumoto, chief strategist at Okasan Securities.

"But that does not mean investors are pessimistic about the market in the coming year. They may just want to avoid risks during the market close in Japan for the new year, which is longer than usual."

The Japanese markets will reopen on Jan. 6 after closing for the new year holidays from the next session.

Chip-testing equipment maker Advantest fell 3.83% to drag the Nikkei the most.

Nissan Motor slipped 5.64% to become the biggest percentage loser on the Nikkei. Nissan's shares surged nearly 40% this month as merger talks between the automaker and peer Honda Motor surfaced.

Makino Milling Machine's shares were untraded and were set to a daily limit of 10,750 yen after a surprise unsolicited takeover bid by Japanese manufacturing giant Nidec.

Takehiko Masuzawa, trading head at Phillip Securities Japan, said the Nikkei rose last week as investors bought back stocks to cover their short positions ahead of the long market holiday.

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Dollar Strengthens on Elevated US Bond Yields, Tariff Talks

A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
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Dollar Strengthens on Elevated US Bond Yields, Tariff Talks

A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo

The dollar rose for a second day on Wednesday on higher US bond yields, sending other major currencies to multi-month lows, with a report that Donald Trump was mulling emergency measures to allow for a new tariff program also lending support.

The already-firm dollar climbed higher on Wednesday after CNN reported that President-elect Trump is considering declaring a national economic emergency as legal justification for a large swath of universal tariffs on allies and adversaries.

The dollar index was last up 0.5% at 109.24, not far from the two-year peak of 109.58 it hit last week, Reuters reported.

Its gains were broad-based, with the euro down 0.43% at $1.0293 and Britain's pound under particular pressure, down 1.09% at $1.2342.

Data on Tuesday showed US job openings unexpectedly rose in November and layoffs were low, while a separate survey showed US services sector activity accelerated in December and a measure of input prices hit a two-year high - a possible inflation warning.

Bond markets reacted by sending 10-year Treasury yields up more than eight basis points on Tuesday, with the yield climbing to 4.728% on Wednesday.

"We're getting very strong US numbers... which has rates going up," said Bart Wakabayashi, Tokyo branch manager at State Street, pushing expectations of Fed rate cuts out to the northern summer or beyond.

"There's even the discussion about, will they cut, or may they even hike? The narrative has changed quite significantly."

Markets are now pricing in just 36 basis points of easing from the Fed this year, with a first cut in July.

US private payrolls data due later in the session will be eyed for further clues on the likely path of US rates.

Traders are jittery ahead of key US labor data on Friday and the inauguration of Donald Trump on Jan. 20, with his second US presidency expected to begin with a flurry of policy announcements and executive orders.

The move in the pound drew particular attention, as it came alongside a sharp sell-off in British stocks and government bonds. The 10-year gilt yield is at its highest since 2008.

Higher yields in general are more likely to lead to a stronger currency, but not in this case.

"With a non-data driven rise in yields that is not driven by any positive news - and the trigger seems to be inflation concern in the US, and Treasuries are selling off - the correlation inverts," said Francesco Pesole, currency analyst at ING.

"That doesn't happen for every currency, but the pound remains more sensitive than most other currencies to a rise in yields, likely because there's still this lack of confidence in the sustainability of budget measures."

Markets did not welcome the budget from Britain's new Labor government late last year.

Elsewhere, the yen sagged close to the 160 per dollar level that drew intervention last year, touching 158.55, its weakest on the dollar for nearly six months.

Japan's consumer sentiment deteriorated in December, a government survey showed, casting doubt on the central bank's view that solid household spending will underpin the economy and justify a rise in interest rates.

China's yuan hit 7.3322 per dollar, the lowest level since September 2023.