Markets in Asia dropped sharply on Friday, with the Nikkei tumbling, after a sell-off on Wall Street as oil remained volatile and concerns about how central banks' easing measures will affect banks' earnings persisted.
"The idea that central banks are now fully targeting the interest rate structure and putting a gun to domestic banks heads in a fight to stoke credit growth is in no way an equity friendly story," wrote Chris Weston, chief market strategist at spreadbetter IG, in a morning note. The Bank of Japan blindsided markets on January 29 by cutting its benchmark rate into negative territory in a move that's sparked concerns over banks' earnings.
Japan's Nikkei 225, which reopened after a public holiday on Thursday, dropped 760.78 points, or 4.84 percent, to 14,952.61, falling for seven of the past eight sessions to its lowest close since October, 2014. The Nikkei 225 has been on a downward spiral in recent days, as the yen rapidly strengthened against the dollar, with the index ending down more than 11 percent for the week.
"The heightened volatility in financial markets could adversely impact the real economy. It may dampen business confidence, disincentivizing Japanese companies from investing and raising wages. It may also discourage banks from lending and expanding the balance sheets," DBS said in a note Friday. "If the financial market jitters spread and business plans are postponed broadly elsewhere, Japan's exports would also be depressed."
During Asian trade, the dollar-yen pair was at 112.50, up from a session low of 111.91; it had traded as low as 110.98 on Thursday, compared with levels over 120 at the beginning of the month. The yen has risen sharply since the BOJ's move to a negative interest rate policy. A strong yen is a negative for export stocks as it dampens their overseas profits when converted into local currency.
That's prompting some analysts to revise their forecasts for the dollar-yen pair. Barclays said in a note Friday that it believes the yen had been "excessively" undervalued compared with the country's economic fundamentals and that's now unwinding. It expects the dollar-yen pair to fall as low as 100 by end of the first quarter and 95 by year end.
In Australia, the S&P/ASX 200 fell 55.77 points, or 1.16 percent, to 4,765.30, off by more than 2 percent for the week. The financial sector weighed on the index, dropping 1.58 percent on Friday.
In South Korea, the Kospi was down 26.26 points, or 1.41 percent, at 1,835.28, while Hong Kong's Hang Seng index slipped 226.22 points, or 1.22 percent, to 18,319.58 on its second day of trade this week. Both the Korean and Hong Kong markets were closed from Monday through Wednesday for the Lunar New Year holidays.
Mainland Chinese markets and Taiwan will resume trade next week.