Nikkei slips amid growing expectations of BOJ policy shift

Nikkei’s fall continues: Japan's Nikkei share average experienced continued declines on Tuesday, as increasing anticipation of the Bank of Japan (BOJ) potentially exiting negative interest rates prompted traders to adjust their positions.

The Nikkei was down by 0.6 per cent at 38,586.92 during the midday break, with widespread losses observed in the morning session. Among its 225 constituents, only 42 advanced while 180 declined.

Heavyweight shares exerted downward pressure on the Nikkei, which has recorded a 16 per cent climb so far this year.

Chip-making equipment giant and AI-focused startup investor SoftBank Group were among the decliners, contributing to the index's overall loss.

Big-name automaker Toyota Motor fell by 1.5 per cent as the yen continued to strengthen on speculation regarding the BOJ's potential exit from negative interest rates at its upcoming policy meeting on March 18-19.

Speculation intensified after the BOJ refrained from purchasing Japanese exchange-traded funds on Monday, despite a sharp drop in local shares. 

The move further fuelled expectations of imminent policy revisions.

Maki Sawada, a strategist at Nomura Securities, noted, "There's a strong belief in the market that the BOJ will stop buying ETFs when it exits negative rates." 

Sawada stressed that the absence of purchases in such circumstances has bolstered expectations for policy adjustments.

As traders await the BOJ's decision, Sawada anticipated potential position adjustments throughout the week.

The broader Topix index was also down by 1.26 per cent at 2633.23, with sectors such as banks, insurance firms, and wholesalers experiencing declines of more than 2 per cent, as traders reshuffled their positions amid evolving market expectations.

(With Reuters Inputs)