Tokyo stocks opened lower on Monday after Italian Prime Minister Matteo Renzi’s resignation following a crushing referendum defeat sparked worries about political instability in the key eurozone country.
The euro also briefly dived to 20-month lows against the dollar on the news which sparked demand for the safe-haven yen — a negative for Japanese shares as the stronger currency hurts exporters’ profitability, reports BSS.
Investors largely shrugged off data released Friday that showed the US unemployment rate at a nine-year low in November, all but guaranteeing an interest rate hike before the end of the year.
Italian Prime Minister Matteo Renzi speaks during a media conference after a referendum on constitutional reform at Chigi palace in Rome, Italy
Concerns over political uncertainty are spreading “as news trickles out that those opposing reform are gaining the edge”, said Yutaka Miura, a senior technical analyst at Mizuho Securities.
“An overheated rally in US equities and the dollar — and the dip in the yen — is taking a pause, causing Japanese stocks to trade slightly weaker,” he told Bloomberg News.
Tokyo’s benchmark Nikkei 225 index opened down 0.41 percent, or 76.16 points, at 18,349.92, while the Topix index of all first-section issues was off 0.51 percent, or 7.56 points, to 1,470.42.
In forex markets, the 19-nation euro slumped to $1.0506 in early Tokyo trade, its lowest since March 2015, but it later rebounded to $1.0585.
Meanwhile, the yen, which is often bought as a safe haven in times of uncertainty, picked up in early deals with the dollar fetching 112.88 yen, against 113.51 yen in New York on Friday. The dollar also quickly recovered to sit at 113.71 yen.
Renzi announced his resignation hours after losing a referendum on constitutional reform held on Sunday. Italian’s voted against proposed reforms that would have curtailed the size and powers of the Senate and transferred powers from regions to the national government.
Opposition parties had denounced the proposed amendments to the constitution as dangerous for democracy because they would have removed important checks and balances on executive power.
The defeat and Renzi’s departure threatens to plunge Italy into a new phase of political uncertainty and possible economic turmoil.
Some analysts fear a deeper crisis of investor confidence that could derail a rescue scheme for Italy’s most indebted banks, triggering a wider financial crisis across the eurozone.
“(Renzi’s) defeat in the face of populist moves will spawn concerns over the rest of Europe,” said Yunosuke Ikeda, chief currency strategist at Nomura Securities in Tokyo.
“But given the fact that this had been predicted beforehand, it’s not a surprise in the same way as the Brexit vote or (Donald) Trump’s election victory.
“As Prime Minister Renzi has now resigned, some investors might think all the bad news is out now.”
