TOKYO -- Japanese equities dropped Monday despite persistent hopes that the Bank of Japan will decide to expand monetary easing measures this week as bearish investors shifted focus to shares more resilient amid deflation.
The Nikkei Stock Average ended down for the first time in five sessions, by 0.76% at 17,439.
Mitsubishi Heavy Industries, Fujikura and IHI on Monday all downgraded profit forecasts for the year ended March 31. Many investors are growing concerned as Japanese corporations prepare to release fiscal 2015 results. More than half of stocks on the first section of the Tokyo Stock Exchange suffered drops Monday.
Some still hope that the BOJ will decide to expand its stimulus package at its two-day meeting starting Wednesday. But some investors purchased puts in the 16,000 yen ($143) range Monday in case the central bank does not take additional easing steps by the end of April.
While many stocks topped out ahead of the BOJ gathering, clothing chain operator Shimamura gained as much as 4% to touch a year-to-date high of 15,000 yen. Seria, which operates 100-yen stores, ended up 1%.
"Now that we're considering a possible delay in the consumption tax hike, people are snapping up issues that will benefit from deflation," kabu.com Securities President Masakatsu Saito said Monday.
Similar trends can be seen among long-term investors. Hifumi Plus has consistently ranked among the top 10 mutual funds invested in online through the NISA tax-free investment program. The fund had shares in Shimamura and temp agency Outsourcing at the end of March. Its 10 largest shareholdings do not include even one manufacturer.
"Japan has faced deflation since last summer," said Hideto Fujino of Rheos Capital Works, which manages the fund. "We sold manufacturing stocks and bought shares in companies that could turn a profit even in a deflationary economy."
This reallocation took place last December. Hifumi Plus has outperformed the Topix index of all TSE first-section issues by about 10% since the start of this year.
Abenomics aims to weaken the yen and boost import prices to help the economy break free of deflation. But the currency has not remained soft.
"The charts point to the yen reaching 105 against the dollar," said Daisaku Ueno of Mitsubishi UFJ Morgan Stanley Securities.
The BOJ's new consumer price index, which excludes energy costs, is in positive territory. But another core CPI calculated by Mizuho Securities, which also excludes exchange rate effects, has languished at about minus 0.5% since 2012. This indicates that the Japanese economy could easily fall back into deflation without a weak yen.
Even if the BOJ does opt for additional easing this week, it might not make much of a difference, judging by the bank's attempts over the last four years to kick deflation to the curb. The BOJ has a tough decision to make.