March 16, 2020 / 7:50 AM / 24 days ago

Tokyo shares sink to lowest in more than 3 years despite BOJ promise to ramp up ETF buying

March 16 (Reuters) - Tokyo stocks slid to their lowest in three and a half years on Monday as the Bank of Japan’s emergency pledge to boost buying of Exchange Traded Funds (ETF) by up to double current levels failed to calm investor nerves.

The BOJ move, announced in statement after an emergency meeting, came as global central banks step up efforts to combat the widening economic fallout from the coronavirus epidemic.

The benchmark Nikkei average skidded 2.5% in choppy trading to finish at 17,002.04, its lowest closing level since November 2016.

The Nikkei’s volatility index, a measure of investors’ volatility expectations based on option pricing, jumped 17% to 60.03, its highest level since March 2011 when massive earthquakes and a tsunami struck Japan.

“The market got excited by the 12 trillion yen ($113 billion) figure before quickly finding out a footnote that says it is the maximum figure,” said Yusuke Ikawa, Japan strategist at BNP Paribas.

While the BOJ said it could buy about 12 trillion yen of ETFs, in a footnote to its statement it also said it will continue buying ETFs at around 6 trillion yen annually in principle.

“The market is no longer reacting to each step the BOJ is taking, looking at whether any of them work. Rather, markets are reacting negatively because they have lost confidence in the BOJ,” said Yasuo Sakuma, chief investment officer at Libra Investments.

“Now it’s obvious that the BOJ has no card left to play.”

BOJ Governor Haruhiko Kuroda was to hold a news conference from 0700 GMT to explain the policy decision.

Earlier in the day, the U.S. Federal Reserve slashed interest rates in an emergency move and its major peers offered cheap U.S. dollars to ease a logjam in global lending markets.

The coordinated global actions were reminiscent of the sweeping steps taken just over a decade ago to fight a meltdown of the global financial system, but this time the target was a fast-spreading health crisis with no certain end in sight.

More than 162,000 are infected and over 6,000 have died of coronavirus globally. Lockdowns and travel bans spread across the world over the weekend, affecting tens of millions of people.

On the Tokyo bourse the broader Topix shed 2.0% to 1,236.34, its lowest close since July 2016.

Four-fifth of the 33 sector sub-indexes on the Tokyo Stock Exchange traded lower, with rubber products, transport equipment and electric machinery being the worst three performing sectors.

Automakers were hit hard, with Toyota Motor Corp losing 2.4%, Nissan Motor Co Ltd falling 3.5% and Honda Motor Co Ltd declining 3.4%.

Elsewhere, Fujifilm Holdings Corp gained 0.8% after the company said it will buy back up to 1.07% of shares worth 15 billion yen. ($1 = 106.5600 yen)

Reporting by Tomo Uetake; Additional reporting by Hideyuki Sano; Editing by Kim Coghill and Kenneth Maxwell

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