Japan index slides into correction

The world’s best-performing major equity market this year entered a correction Thursday as Japan’s Nikkei 225 Stock Average plunged more than 5 percent.

All but two stocks dropped on the benchmark, which slid 5.2 percent to close at 13,589.03. The sell off accelerated as the yen strengthened toward 100 to the dollar. Volatility on the Nikkei 225 climbed for the first time in five days to near a two-year high. The broader Topix index lost 3.8 percent, ending the day 11 percent below a five-year high reached on May 22. A correction is defined as a decline of more than 10 percent from a recent peak.

“Selling is feeding into more selling,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages the equivalent of $60 billion. “It’s mind-boggling that this market, which is one of the most liquid in the world, can move so much in one day like this.”

Historical volatility on the Topix remained at its highest in two years as all 33 industry groups dropped. The equity measure plunged 6.9 percent on May 23, its biggest one day decline since the March2011 tsunami and nuclear disaster, erasing $304 billion in market value. The index is still up 32 percent this year.

Honda Motor Co. sank 3.4 percent to pace declines Thursday among car makers. Developers fell the most among the Topix industry groups, extending declines from an April peak to more than 20 percent, after the Nikkei newspaper reported banks plan to raise mortgage rates. Mitsubishi UFJ Financial Group Inc. fell 3.1 percent after Japan’s finance minister said an increase in bond yields may hurt lenders. Kobe Steel Ltd. tumbled 8.5 percent after saying it will book a charge from closing plants.

Fast Retailing Co., operator of the Uniqlo clothing chain and the company with the heaviest weighting on the Nikkei 225, has plunged 13 percent this week, accounting for about a fifth of the benchmark’s slide. The shares plunged 11 percent Thursday.

All Topix industry groups have dropped from their 52-week highs, with developers, banks and transport logistics companies falling the most.

The decline in Japanese shares hasn’t just hit big companies, with the Jasdaq Stock Index of start-ups down 11 percent from its peak on May 14. The Tokyo Stock Exchange Mothers Index of small firms dropped 17 percent.

“The market may correct for another month or so, after it rose so quickly and strongly,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd., which has the equivalent of $325 billion in assets. “The market isn’t going to be traded on expectations alone, like it was before.”