Japan's Topix index headed for its lowest close in about three weeks as the weakest U.S. employment report in almost six years sent the dollar plunging against the yen, clouding the outlook for exporters.
Investors in Japan are being dealt another blow after shares slumped last week on disappointment Prime Minister Shinzo Abe didn't detail a stimulus package when he announced a delay to the sales tax increase. The worse-than-forecast jobs report calls into question the Federal Reserve's case for raising interest rates and the trajectory for the dollar-yen rate. The Topix had gained in May and the yen weakened amid growing bets the U.S. economy is strong enough to handle a boost to borrowing costs.
"The market had been taking an optimistic view that even if we see a U.S. rate hike in the coming few weeks, the economy was brisk enough to withstand it," said Yoshinori Ogawa, a market strategist at Okasan Securities Co. in Tokyo. "But now we see that there's a gap between the actual economy and what the market was thinking. Expectations at home for fiscal stimulus have receded and there's really no reason to buy Japanese stocks at the moment."
The Topix index dropped 1 percent to 1,324.02 as of 1:37 p.m. in Tokyo, with about three shares retreating for each that advanced. The Nikkei 225 Stock Average lost 1 percent to 16,480.43. The yen traded at 106.53 per dollar after surging 2.2 percent on Friday, the most in more than a month, as data showed U.S. employers added the fewest number of workers since 2010 in May.
The Topix has been battered this year, with the gauge down 14 percent as a global equity rout that began at the start of 2016 sent the yen higher, while the Bank of Japan's efforts to boost stimulus by implementing negative rates hurt bank shares. Abe last week said the country will delay a planned sales tax increase, which had been scheduled for next April, on concern consumption isn't strong enough to handle a higher levy.
Attention will turn to policy meetings of both the BOJ and the Fed next week. In Japan, investors will watch for signs on whether the central bank will add to stimulus to reach its 2 percent inflation goal. In the U.S., the addition of 38,000 workers last month pared back expectations the Fed will raise rates soon. Traders are now pricing in a 27 percent chance of a boost in U.S. rates by July, down from 55 percent before the report.
Investors are waiting for a speech on Monday by Fed Chair Janet Yellen, who is expected to give some clues to her thinking at her last public speaking event ahead of the monetary policy meeting on June 15.
"We want to confirm if Yellen's tone has changed following the latest payrolls report," said Okasan's Ogawa.
Toyota, Nissan
Exporters tumbled, with electric-appliance producers and automakers being among the heaviest drags to the Topix. Mazda Motor Corp. and Nissan Motor Co. fell at least 1.4 percent.
Panasonic Corp. slid 2.5 percent after the Nikkei newspaper reported the Japanese electronic maker's customer, Tesla Motor Inc., received a shipment of battery cells from rival Samsung SDI Co. Panasonic had been an almost exclusive supplier to Tesla for battery cells, according to the Nikkei.
Insurers led losses in Tokyo on concerns about their investment income after yields on U.S. government debt fell. Dai-ichi Life Insurance Co. sank 4.9 percent, while Tokio Marine Holdings Inc. slid 4 percent.
Futures on the S&P 500 Index were little changed after the underlying gauge lost 0.3 percent on Friday, slipping from a seven-month high as a gauge of U.S. non-manufacturing activity in May declined to its weakest since February 2014.
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