TOKYO Kyodo Tokyo stocks got a bumpy start Wednesday, with the Nikkei ending at a 10 month low amid fears that the Bank of Japan could move further toward monetary tightening and a firmer yen against the U.S. dollar.
The 225-issue Nikkei Stock Average dropped 377.64 points, or 1.45 percent, from Friday to 25,716. Its lowest close since March 15 was 86. The broader Topix index was down 23.56 points, or 1.25 percent, at 1,868. Japanese financial markets were closed Monday and Tuesday due to the New Year holidays.
Nearly all the 33 industries on the Tokyo Stock Exchange fell, with marine transportation, mining, and precision instrument issues among the worst performers.
The U.S. dollar fell to the lower 130 yen range from the upper 130 yen zone in Tokyo, due to expectations of a narrowing gap between the long-term U.S. and Japanese interest rates. The U.S. currency dropped to the mid-129 yen range on Tuesday, a level last seen in June.
The euro was quoted at $1.0594 - 0595 and 137.98 - 138.02 yen against $1.0543 - 0553 and 138.09 - 19 yen in New York on Tuesday afternoon.
The yield on the benchmark 10 year Japanese government bond rose 0.045 percentage point from Friday's close to 0.455 percent.
The Nikkei fell below the psychologically important 26,000 mark as investors became increasingly wary of the BOJ moving away from its ultraloose monetary policy after it surprised the market in December with its decision to raise its bond-yield ceiling, a move widely seen as a rate hike.
A news report from the central bank earlier this month said that the central bank is considering revising its inflation outlook at its policy meeting later this month, which has added to the fears, prompting investors to brace for further monetary tightening and a firmer yen, analysts said.
Analysts believe that the data from Chinese manufacturing related to the Japanese holidays and overnight losses in U.S. stocks will dampen investors' hopes that stocks will jump in the Year of the Rabbit, as described in a stock market proverb.
Some investors thought that stocks would rise with the festive mood, but it didn't go as planned, said Toshikazu Horiuchi, equity strategist at IwaiCosmo Securities Co.
He said that they were cautiously watching how the market moves after selling some of their holdings that rose recently.
The shares sensitive to economic fluctuations were lower due to the worsened sentiment. Marine transporter Nippon Yusen fell 202.5 yen, or 6.5 percent, to 2,907. The oil explorer Inpex fell 59 yen, or 4.2 percent, to 1,337 yen.
Some export issues slipped amid the strengthening trend of the yen. Mitsubishi Motors lost 28 yen, or 5.5 percent, to 482 yen, while Mazda Motor fell 30 yen, or 3.0 percent, to 975 yen.
Financial shares went up as investors started to believe that BOJ's potential shift towards a more hawkish stance could lead to higher interest rates and boost earnings.
Mitsubishi UFJ Financial Group gained 37.2 yen, or 4.2 percent, to 926.2 yen. Mizuho Financial Group increased its market value by 56.5 yen, or 3.0 percent, to 1,912. Among prime market issues, declining issues outnumbered advancers 1,584 to 213, while 41 ended unchanged.
The Prime Market's trading volume increased to 1,244. There were 87 million shares from Friday's 881.80 million shares.