Nikkei posts biggest loss in 10 weeks

Japan’s Nikkei share average dropped on Thursday as investors sold semi-conductor and other hi-tech shares after their US peers were sold off sharply following a soft US economic data.

News that Saudi Arabia and Gulf Arab countries had launched military operations in Yemen to beat back Shi'ite militia forces also dampened the mood, although it benefited oil shares as oil prices rose.

The Nikkei fell 1.4 per cent to 19,471.12, its biggest fall in 10 weeks, slipping from a 15-year high of 19.778.60 touched on Monday.

Among semi-conductor shares, Sumco fell 5.2 per cent and Tokyo Electron 5.8 per cent in reaction to the heavy losses in US counterparts. Other high-tech shares also fell, with Fujitsu shedding 3.1 per cent and Sony dropping 3.3 per cent.

The broader Topix fell 1.5 per cent and the JPX-Nikkei Index 400 dropped 1.4 per cent.

Sentiment was hurt by data showing spending on US durable goods fell for the sixth straight month in February. Exports to the United States have been one of the brightest spots for the Japanese economy.

The military intervention in Yemen also hurt the risk appetite, some market players said.

“It is becoming like a proxy war between Sunnis and Shi'ites so it is a source of concern ... Given the weakness in US share markets overnight, this might be used as a reason to sell shares,’’ said Norihiro Fujito, a senior investment analyst at Mitsubishi UFJ Morgan Stanley Securities.

Shippers fell 2.6 per cent, the worst performance among the Tokyo Stock Exchange’s 33 industry sub-indexes, because of growing worries about the safety of sea routes near the Red Sea.

In contrast, oil company shares gained 1.0 per cent as oil prices jumped more than 3 per cent.

Some analysts noted signs that foreign speculators such as hedge funds were starting to sell Japanese shares, which have outperformed many markets this quarter.

“Those agile players are starting to take profits. That is a change you need to pay attention to. When they start to sell, they could sell 2-3 trillion yen and bring down the Nikkei by 2,000 points,” Fujito said. ‘

On the whole, however, market players say the mood is resilient after an 11 per cent gain in the Nikkei this quarter, which would be the biggest quarterly rise since late 2013 if sustained.

GPIF buying

The market has been supported by hopes of buying from Japanese public investors, such as the Government Pension Investment Fund, which have been allocating more money to stocks under the auspices of Prime Minister Shinzo Abe.

Hopes that a rise in wages could boost long-dormant domestic consumption are underpinning the market. “The big change is that until fairly recently, a lot of foreign investors were very sceptical about Abenomics and about the Japanese macroeconomic situation,’’ said Richard Dingemans, CEO at Pelargos Capital, based in The Hague, the Netherlands.

“But with a bit more lasting impact of Abenomics, and also the push from Abe-san himself for better corporate governance, increasing the returns of companies, companies are getting more profitable and that will also enable them to pay higher wages,’’ he said.

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