Tokyo: Japan's Nikkei average edged lower in thin trade yesterday, turning negative after the Bank of Japan left rates unchanged and Chinese stocks fell as trade data for July showed imports were weaker than expected.
The Bank of Japan (BoJ) kept interest rates steady and held off on new policy steps yesterday, saving its limited policy options for when rises in the yen accelerate enough to damage a fragile economic recovery.
Investors are now waiting to see if the Federal Reserve will consider or embark on new policy steps, with speculation rife that it may signal the chance of further monetary easing and possibly drive the yen towards its all-time high above 80 yen to the dollar.
"If the Fed takes steps to lower interest rates, given that the BoJ did nothing, that could lead to a higher yen, which is one reason the market has fallen this afternoon," said Hideki Horikawa, a senior adviser at Himawari Securities.
"I myself think they still don't need to do anything yet, but I'd guess that probably about 60 per cent of people in the market are expecting them to make some kind of move."
Additional downward pressure came as Shanghai shares fell 1.8 per cent after the General Administration of Customs said July imports were up 22.7 per cent from a year before, lower than the market had expected.
The benchmark Nikkei shed 0.2 per cent or 21.44 points to 9,551.05 after spending yesterday morning in positive territory. The broader Topix lost 0.3 per cent to 854.68.
Disappointing US jobs data on Friday fanned speculation that the Fed may soon buy US debt to support an economy that is showing signs of slipping back into recession and to fight potential deflation. It could also halt interest payments on banks' excess reserves.
Market players expect the Nikkei to encounter resistance around 9,750, where they say large numbers of call options are lurking. The next upward target lies at 9,800, a mid-July peak that has blocked the Nikkei's advance several times over the past month.
The Nikkei's 13-week moving average, which has served as resistance for the past few months, now stands at 9,640.
But technicals suggest the Nikkei may move sideways for some time, with the benchmark facing resistance at the bottom of its Ichimoku cloud. Ichimoku charts are a popular charting method among Japanese traders.
The Nikkei's MACD briefly edged above its zero line in morning trade but then fell back. A break above the zero line signals upward momentum.
Trade was thin, with 1.48 billion shares changing hands on the Tokyo exchange's first section, but above the volume marked on Monday, which was the lowest since late December.
Declining stocks outnumbered advancing ones by 3 to 1. Some exporters lost ground as the dollar slipped against the yen, edging down 0.1 per cent to 85.92 after at one point rising within a hair of 86 yen, but others clung to gains.