Japanese stocks dropped in another choppy morning session on Tuesday as lingering worries over China’s economic health offset revised data showing Japan's economy shrank less than expected.

Investors were on edge ahead of China’s trade data, which could point to further weakness in the world’s second-largest economy. The data is due out shortly.

China’s exports were expected to drop 6.0 per cent in August compared with a year earlier, after dipping 8.3 per cent in July, a median forecast of 20 analysts polled by Reuters showed.

By mid-morning, the Nikkei dropped 0.3 per cent to 17,808.99 after opening a tad higher.

“Japanese market’s direction will likely depend on the China data today,’’ said Takuya Takahashi, a strategist at Daiwa Securities.

“The market does not have high expectations on the data. But since China’s economy is the most focused thing now, we may see a drop of 200-300 points in the Nikkei if it disappoints the market seriously.’’

Japan’s GDP data

On the positive side, revised gross domestic product data for the second quarter showed that Japan’s economy shrank less than expected although capital expenditure fell more than originally forecast.

Analysts expect any rebound in the July-September growth to be feeble as factory output unexpectedly fell in July and China's slowdown dampened prospects for a solid recovery in exports.

“It’s natural for investors to be sceptical about growth in the coming months,’’ said Yutaka Miura, senior technical analyst at Mizuho Securities.

Miura added that investors’ cautious stance is reflected in the recent short-sell ratio in Japan, which has stayed above 40 for the past five days, according to data by Japan Exchange Group.

"Retail investors who had shorted stocks are eager to buy back if the Nikkei falls near 17,500," Miura said.

Defensive shares underperformed, with Takeda Pharmaceutical Co falling 1.7 per cent, Astellas Pharma Inc dropping 1.9 per cent, Ajinomoto Co shedding 2.4 per cent and Kikkoman Corp tumbling 3.7 per cent.

Nomural Holdings slumps

Nomura Holdings stumbled 3.4 per cent after Barclays cut its rating to ‘underweight’ from ‘equal weight’. It said that given the recent stock market rout in August, further instability in the financial market could result in weaker revenues for brokers like Nomura which has a strong wholesales business.

Exporters were mixed, with Toyota Motor Corp rising 0.5 per cent, Honda Motor Co gaining 0.5 percent and Panasonic Corp falling 0.2 per cent.

The broader Topix gained 0.1 per cent and the JPX-Nikkei Index 400 added 0.1 per cent to 12,983.70.

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Published on September 8, 2015