Japan's Nikkei share average stumbled to two-week lows on Friday morning after investors turned risk-averse as major central banks signalled that the era of cheap money was coming to an end, which hurt both US and European markets overnight.
While 31 of the Topix's 33 subsectors were in negative territory, tech names in particular underperformed after a sharp sell-off in the Nasdaq overnight soured sentiment.
The Nikkei dropped 1.2 per cent to 19,978.73 in midmorning trade after falling to as low as 19,946.51, the lowest level since June 16. For the week, the benchmark index is on track to fall 0.7 per cent, but it is poised to rise 1.8 per cent on the month. For the quarter, it has gained 5.8 per cent so far.
Equity investors are concerned about the rise in interest rates globally, as a host of hawkish comments from central banks signalled the beginning of the end of ultra-loose monetary policy.
European Central Bank President Mario Draghi indicated on Tuesday that the central bank could begin to tighten monetary policy, though sources said on Wednesday that Draghi had been overinterpreted by markets.
Bank of England Governor Mark Carney surprised many on Wednesday by conceding that a hike was likely to be needed as the economy came closer to running at full capacity.
The Bank of Canada had its say, with two top policymakers this week suggesting they might tighten monetary policy as early as July. “Stock markets around the world have been supported by ultra-loose monetary policy by their central banks, so the signs of reversing are frightening investors,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.
“With these central banks hinting at tightening, the next question will likely be to the Bank of Japan asking whether and when it will start discussing exit strategy.”
On Friday, data showed that Japan's core consumer prices rose 0.4 per cent in May from a year earlier, marking the fifth straight month of gains and offering the central bank some hope a strengthening economy will gradually lift inflation toward its ambitious 2 per cent target.
Tech shares were sold, with Advantest Corp tumbling 3.0 per cent, Panasonic Corp shed 1.9 per cent and electronic products maker Ibiden Co declined 2.6 per cent.
Banking stocks outperformed, after Benchmark US Treasury yields rose overnight. Mizuho Financial Group and Sumitomo Mitsui Financial Group both rose 0.2 per cent. The broader Topix dropped 0.9 per cent to 1,609.78.