Japanese share prices slid on Tuesday after the Chinese central bank lowered the yuan for a second day, fanning more worries of slowing growth in China.
The Nikkei average fell 1.1 per cent to 20,495.40, hitting its lowest level in more than a week, while the broader Topix fell 1.0 per cent to 1,670.89.
The People’s Bank of China set its guidance rate for the yuan 1.6 per cent lower than previous close, a day after it drove it down nearly 2 per cent.
“This seems to show just how much the Chinese authorities are concerned about slowdown in the Chinese economy,’’ said Kei Okamura, assistant investment manager at Aberdeen Investment Management.
Steelmakers and other companies broadly exposed to China came under renewed pressure, reversing their outperformance on Tuesday.
The Tokyo Stock Exchange’s steelmaker industry subindex fell 2.8 per cent, with JFE Holdings falling 4.7 per cent and Nippon Steel & Sumitomo Metal dropping 2.8 per cent.
Construction equipment maker Komatsu fell 3.2 per cent, while its rival Hitachi Construction Machinery fell 2.8 per cent.
Carmakers, seen as susceptible to global economic outlook, fell 1.6 per cent, with Nissan falling 1.7 percent and Honda shedding 2.1 per cent.
Still, market players say investor sentiment on Japanese shares remained fairly strong, with many Japanese companies posting double-digit profit growth in April-June.
Expectations of continued buying by Japanese public investors such as the Bank of Japan and public pension funds also continued to underpin the market.
“This is by no means a panic or trend-inducing kind of caution,’’ said Stephen Worrell, director of equity cash sales at Credit Suisse.
“But there is some uncertainty about whether the yuan devaluation is part of a controlled stimulus plan or a sign that Beijing is blinking in the face of greater weakness to come, and uncertainty always warrants caution,’’ he said.
Analysts also say the impact of a fall in the yuan on the Japanese economy should not be that big.
The yuan, which had risen almost 25 per cent on the yen at one point since the yen started weakening in late 2012 on Japan’s “Abenomics’’ stimulus policies, is still up about one per cent so far this year.
Japanese companies could be better off if the Chinese economy bottoms out and recovers as a result of stimulus measures — including the latest currency moves.
A cheaper yuan could benefit some companies that have a major production base in China, some market players also said.