Nikkei 225 Records Strong Gain Despite Toshiba Share Price Crash

on Jan 19, 2017

The main story dominating the Nikkei 225 today is the travails of Toshiba. The Nikkei itself finished the session with a strong 0.94% gain as the yen weakened against the U.S. dollar in the wake of an address by Federal Reserve Chair Janet Yellen. Yellen reaffirmed the Fed’s intention to raise interest rates a few times over the course of 2017. She stated that the Fed expected rate rises a few times a year up until 2019, building towards a ‘longer-run neutral rate of 3%’.

Yellen struck a positive note regarding the health of the U.S. economy, which she affirmed was in rude health, justifying interest rate rises as a necessary means to keep inflation in check. Despite Yellen’s hawkish address, Wall Street experienced a muted session Wednesday. Market participants are clearly waiting for concrete developments, policy announcement and actions when Trump takes office on Friday before deciding whether rally that has been in effect since his election in November should continue or not. The Nasdaq (0.3%) and S&P (0.2%) finished the session marginally up while the Dow Jones was very slightly down, slipping by 0.1%.

Despite the lack of a clear positive direction from Wall Street, the Nikkei 225 took inspiration from the positive tone of Yellen’s address, as well as the weakening of the yen against the U.S. dollar to open the session almost 1% up. Despite not being able to add to that opening strength the index managed to maintain that level throughout the day to record a positive return for Thursday. However, the Nikkei will need another good session tomorrow if it is to reclaim the ground lost over Monday and Tuesday this week.

The generally positive session for Japanese equities was overshadowed by a run on Toshiba, which saw the company facing losing almost a quarter of its value at one point. The share price eventually finished the session down just under 16%. The sell-off was provoked by Japanese media reports that the company’s write-downs on Stone&Webster a nuclear construction subsidiary acquired by Westinghouse, Toshiba’s U.S. unit, could reach anything between $5 and $8 billion.
The scale of such a write-down, even at the low end of the range, would decimate the company’s shareholder equity and leave the company short of options. With Toshiba suffering downgrading by ratings agencies over the past few months, as the write-down scandal emerged, borrowing money through traditional means would prove difficult. It is rumoured that meetings have already been held with the Development Bank of Japan, which could potentially come to the company’s rescue. The state-owned bank may turn out to be the only hope for an industrial conglomerate which has always been at the heart of Japan’s development in recent decades.
Elsewhere, the day’s most positive performance was recorded by international shipping and transportation company Mitsui O.S.K Lines, which rose by 4.36%. The shipping industry is in the process of a consolidation phase and Mitsui O.S.K, Nippon Yusen and Kawasaki Kisen Kaisha, the country’s biggest shipping companies are in the process of merging their container-moving businesses. The joint operation should be fully in place by April next year. Nippon Yusen was also among the strongest gainers today, up 3.48%. Automation and robotics company FANUC gained 3.67%.

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