Japan’s Nikkei pares losses after Credit Suisse liquidity measures

Japan’s Nikkei share average trimmed losses on Thursday after hitting a near two-month low in another volatile session after embattled Swiss lender Credit Suisse announced plans to strengthen its cash position, Reuters reported.

The week has seen wild swings in Japanese banks, causing the Nikkei to fall below 27,000 for the first time since Jan. 23, on fears of contagion from the Silicon Valley Bank meltdown and Credit Suisse’s woes.

The Nikkei recovered some losses to end 0.8% lower at 27,010,61, after falling to as low as 26,632.92, its lowest since Jan. 20.

Credit Suisse said earlier in the day it was taking “decisive action” to strengthen its liquidity by exercising its option to borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.

The banking sector pared losses but ended 3.26% lower. Among the biggest losers were Sumitomo Mitsui Trust Holdings Inc , down 6.27% and Japan Post Bank Co Ltd , down 5.2%.

The broader TOPIX index fell 1.17% to 1,937.10.

Japan’s banking sector has been hurt mainly by the losses in Silicon Valley Bank’s bond portfolio, which have drawn attention to the risks for Japanese lenders’ gigantic foreign bond holdings, estimated to be carrying over 4 trillion yen ($30 billion) in unrealised losses.

The shift in the global interest rate expectations has also dashed bets on policy normalisation, and improved margins, any time soon for Japanese banks.

Shigetoshi Kamada, general manager at the research department at Tachibana Securities, said the main players in Japan’s stock market were foreigners, and that explained the contagion.

“Investors are forced to sell Japanese stocks to book losses. They have been buying value stocks, such as banks and insurers since the beginning of the year, seeking high dividend payouts and to take advantage of low price-book ratios,” he said.

Including Thursday’s fall, the banking sector index has fallen by almost 17% over 5 days and 4% year to date.

“Declines in Japan’s banking stocks may be a reaction from recent gains in their shares,” said Takatoshi Itoshima, a strategist at Pictet Asset Management. “…the fundamental financial situation in Japan is different from that in the U.S. and Europe.”