Tokyo: Japan’s Nikkei share average slid more than 2% on Friday and was on course for a seventh straight week of losses, as worries about Spain’s banking sector hammered financial shares and a stronger yen kicked down exporters such as Toyota Motor.
The Nikkei was down 2.3% at 8,669.30 at midday, well below the 8,800 level that provided support on Thursday. The broader Topix dropped 2.4% to 729.06, giving up all its gains from a 17% rally in the first quarter.
“The stocks everyone bought in March are now getting blasted, and foreign investors have to keep selling to maintain their margins. It’s a negative spiral and makes the market very weak,” said Norihiro Fujito, general manager at Mitsubishi UFJ Morgan Stanley.
Hitachi Construction Machinery Co Ltd plunged 9.5% and Komatsu Ltd dropped 5.1% as the third most-traded stock by turnover on the main board, after Caterpillar Inc’s dealers reported slowing sales in April, with the sharpest deterioration in the Asia-Pacific region.
Farm equipment and machinery maker Kubota Corp shed 4.1%.
The securities sector tumbled 4.4% on concerns about the possible broader impact from ailing Spanish banks.
Nomura Holdings, Japan’s biggest brokerage, lost 4.6%.
Financials were also weighed down by a Fitch Ratings report that the world’s top 29 banks may need a total $566 billion to meet tougher new capital rules, cutting returns by a fifth and forcing them to curb investor payouts and raise customer charges.
“Almost everybody is trading for no longer than a couple of days now and the hedge funds are trying to make hay out of this by shorting stocks aggressively,” said a trader at a foreign bank. “They just have the market to themselves and can knock stocks down because there’s nobody to support them.”
Market analysts said they expected the Bank of Japan to step in to prop up the market by buying exchange-traded funds in the afternoon, a move it usually makes when the Topix index falls more than 1%.
“It’s a typical equity flight pattern, hedge funds and foreign investors are unwinding their positions and heading to bonds,” said Fujito of Mitsubishi UFJ Morgan Stanley.
The euro dropped to a 3-1/2 month low at ¥100.70 and the dollar went back under ¥80, sending exporters tumbling. Automakers Toyota Motor Co, Honda Motor Co and Nissan Motor Co dropped between 2. 3 and 3.5%.
Nikon Corp slid 5.9%, also dragged down after Nomura cut its rating on the camera maker to “neutral” from “buy” and slashed its price target to ¥2,667 from ¥2,914.
Weak US data overnight contributed to the bearish atmosphere, but a trader at a foreign bank said the tension in the markets in response to Spain’s banking situation was unwarranted.
“The market indicators that were in such panic and distress before the last LTRO (long-term refinancing operation) are still not elevated towards the levels of November, which is a sea change,” he said.