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 , 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.
Among Japanese exporters, Toyota, Nissan and Sharp dropped 6.81, 5.82, and 10.32 percent, respectively.
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.
Banking stocks under pressure
Asia's banks and financial stocks remained under pressure, following drops in their Europe and the U.S. counterparts as concerns mounted over their potential performance in a low-growth and low-interest rate environment.
The so-called Big Four banks Down Under - ANZ, Commonwealth Bank of Australia, Westpac, and NAB - closed down between 1.31 and 2.54 percent.
Japanese banks saw steep losses, with Mitsubishi UFJ down 2.23 percent, SMFG lower by 4.06 percent, Mizuho Financial shedding 3.66 percent and Nomura falling 9.21 percent.
South Korean brokerages were down between 0.70 and 5.03 percent; Samsung Securities fell 3.50 percent, while Daewoo Securities was down 3.20 percent.
Overnight, European banking equities extended recent declines, pushing the European bank index down 6.3 percent by the end of trade. Concerns over interest rates' effects on banks got an additional fillip when Sweden's central bank yesterday slashed its deposit rates from negative-35 basis points to negative-50 basis points.
Oil gains 5% in Asian trade
Oil prices remained volatile, registering gains in Asian trade after a drop overnight on the back of a build-up in global inventories.
U.S. crude retraced losses of 4.5 percent overnight to trade up 4.81 percent in Asian hours at $27.47 a barrel. Global benchmark Brent was up 4.36 percent at $31.37 a barrel.
Energy plays were mixed, with shares of Santos rising 3.61 percent and Woodside slipping 0.26 percent, while Japan's Inpex fell 6.36 percent and Japan Petroleum slid 3.94 percent.
Hong Kong-listed shares of CNOOC, Petrochina and Sinopec closed up between 0.40 and 0.67 percent.
The Wall Street Journal reported that according to UAE's energy minister, OPEC was ready to cooperate on production cuts, But skepticism in the market remained; in recent weeks both Russia and Venezuela have called for OPEC and other major oil producers to cut output and Iran has said it is ready to cooperate on output, all apparently without making any headway.
Bluescope shares up 14%
Shares of steelmaker Bluescope closed up 14.16 percent, after a profit upgrade. The steelmaker projected earnings for the first half of fiscal 2016 would be A$230 million, up from an earlier projection of about A$180 million. Reports said the company cited accelerated cost-cutting, better margins and rising demand in Australia as reasons for the profit upgrade.
Other resources plays Down Under closed mostly down, with big producers Rio Tinto and BHP Billiton falling 1.27 and 0.98 percent respectively. Iron ore producer Fortescue was down 4.71 percent.
Rio Tinto reported annual losses after Thursday's market close and scrapped its progressive dividend policy, broadly in line with market expectations, citing worsening global economic conditions and downturn in commodity prices. Rio Tinto reported a net loss of $866 million for 2015, compared with a $6.53 billion profit the previous year.
The price of gold was off 0.84 percent at $1,236.10 an ounce during Asian hours after jumping more than 5 percent in overnight trade to a one-year high. The precious metal is usually considered a safe-haven investment at times of market volatility.
Mark Matthews from Bank Julius Baer said in a note that at any moment a rally in risk appetite could send the precious metal back down. But Matthews added, "Few market participants think that rally, when it comes, will be sustainable, and after that, markets will remain in a southerly direction for the next few months."
"In which case, there is more room for gold (and its proxies) to move higher," added Matthews.
Gold miners ended mostly up. Shares of Evolution Mining added 5.05 percent, Kingsgate soared 43.75 percent and Alacer Gold tacked on 3.77 percent. Newcrest gave up morning gains to close down 0.12 percent.
Major indexes in the U.S. finished lower, with the closing 254.56 points, or 1.6 percent, lower at 15,660.18. The S&P 500 slipped 22.78 points, or 1.23 percent, to 1,829.08 and the was down 16.76 points, or 0.39 percent, at 4,266.84.
CORRECTION
This report has been updated to reflect that Brent crude rose in the Thursday U.S. trading session.