Bank sell-off spreads to Japan as SVB collapse shakes global markets

Shares in Japan’s biggest banks fell sharply on Tuesday as global markets reacted to a sell-off in the US banking sector sparked by the collapse of tech-focused lender Silicon Valley Bank.

Traders in Tokyo said they expected a second day of massive stock market support from the Bank of Japan to stave off a deeper defeat after Japan’s Topix plunged more than 3.1 percent in morning trade, led by the country’s biggest lenders.

Shares of MUFG, Mizuho and SMFG fell between 7.5 percent and 8.1 percent in early trade as traders bet that the SVB’s collapse could derail big Federal Reserve rate hikes, fueling investor hopes for higher would reduce bank profits.

“Fed rate hikes look less likely, JGB yields have fallen and the yen is stronger. It’s a huge change in market environment and that’s why bank stocks are falling,” said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities.

The BoJ announced Monday night that it had re-entered the Tokyo stock market for the first time since early December 2022, buying $5.2 billion worth of exchange-traded funds.

The Topix Banks Index fell as much as 7.6 percent on Tuesday, heading for its worst day in more than three years.

“When you saw the Topix slip below 2 percent on Tuesday, you could pretty much tell the BoJ was buying again. I think we can expect this to become the pattern until this is resolved,” said a Tokyo-based stockbroker.

SoftBank, one of the Asian business analysts thought to be hardest hit by the fallout from the SVB crisis in the tech industry, fell 3.4 percent in early trade. Shares in Mizuho, ​​SoftBank’s largest lender, lost more than 7.5 percent of their value in the morning session.

South Korea’s Kospi lost 1.9 percent. Hong Kong’s Hang Seng Index slipped 0.9 percent, while China’s CSI 300 fell 0.5 percent.

US Treasury bond prices fell on Tuesday, with the 10-year yield rising 3 basis points to 3.543 percent and the two-year yield rising 2 basis points to 4.054 percent. Yields move inversely with price.

That was followed by a 0.62 percentage point fall in the yield on the two-year note on Monday, the largest single-day fall since 1987.

The latest moves come despite efforts in the US and UK to protect markets and depositors from the fallout from the SVB implosion.

The Federal Reserve announced an emergency lending facility that would guarantee all depositors could get their funds back on Sunday, while the UK government helped broker a deal for HSBC to buy the bank’s local arm.

US President Joe Biden tried to reassure Americans that their funds were safe, saying the country would do “whatever it takes” to avert a crisis.

Despite the regulatory intervention, US bank stocks collapsed on Monday. The KBW Nasdaq Bank index fell 11.7 percent in the US, with regional banks falling the most on concerns smaller lenders could have more vulnerable balance sheets.

First Republic Bank fell 61.8 percent, Western Alliance Bancorp lost 47.1 percent and KeyCorp lost 27.3 percent.