(Bloomberg) -- Banking stocks, which have been driving the rally in Japanese equities, suffered the biggest drop since October 2008, as investors moved to take profit following the Bank of Japan’s rate hike.
The Topix Banks Index tumbled 11%, with Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. slumping at least 10%. The losses coincided with a plunge in the main Topix index, which slid 6.1%, the most in eight years.
Banks, whose interest incomes had been crushed by years of rock-bottom rates, had rallied 43% this year through Thursday amid speculation the central bank was moving closer to ending its easy monetary policy. The gains in financials helped the benchmark Topix hit a new record high in July.
The sector has now passed “the main event of interest rate hike,” prompting profit-taking, said Kohei Onishi, senior investment strategy researcher at Mitsubishi UFJ Morgan Stanley Securities. The selling pressure is likely to be short-lived, he said.
Investors should still be cautious of the risk of sharp increases in Japan’s interest rates, which could cause the yen to strengthen further and result in paper-losses in financial firms’ bond holdings, according Bloomberg Intelligence analyst Hideyasu Ban.
Additionally, if lending rates climb too quickly, it could raise the concern about the ability of the banks’ customers to pay the interest, he said.
The selloff spread widely to brokerages as Daiwa Securities Group Inc. shares tumbled 19%, the most ever, after it posted quarterly results that missed the market estimate. Its peers including Nomura Holdings Inc. also plunged on concern the slump in stocks market may weigh on their profits.
--With assistance from Takashi Nakamichi.
(Updates with prices throughout)
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