TOKYO -- Tokyo's main share index Thursday posted its steepest decline this year on profit taking triggered by the prospect of higher U.S. interest rates and increasing chaos in Iraq. The U.S. dollar was up against the yen.
The Nikkei Stock Average of 225 issues fell 297.78 points, or 2.46 percent, to 11,800.40. That was the largest percentage drop by the blue-chip index since a 3.16 percent tumble it took on Dec. 8. On Wednesday, it slipped 29.64 points, or 0.24 percent.
The dollar was trading at 108.54 yen by late afternoon Thursday, up 1.32 yen from Wednesday in Tokyo but below the 108.88 yen it bought in New York. The U.S. currency fluctuated between 108.24 yen and 109.28 yen during Tokyo trading hours, rising above 109 yen for the first time in a month.
On the stock market, the retreat was led by banks, property developers and other sectors that have racked up big gains on optimism that they'll benefit most from an upturn in Japan's economy.
Losers in the banking sector included Sumitomo Mitsui Financial Group, Mizuho Financial Group and UFJ Holdings.
Hiroichi Nishi, deputy product group manager at Nikko Cordial Securities, said the market was "taking a breather" after closing at 32-month highs in recent sessions. The Nikkei rose early Thursday before the selling of futures started the pullback.
Pressure to take profits came in part from rising speculation a U.S. interest rate hike may be in the cards - which could put the brakes on an economy that is the biggest market for Japan's exports. That speculation has been encouraged by a string of upbeat U.S. economic data, including a report Wednesday showing a 0.5 percent rise in the consumer price index.
The Tokyo market was also reacting to media reports Wednesday that two more Japanese hostages have apparently been taken hostage in Iraq. Three others have been held captive in the country for at least a week, raising concern that support for the government could be shaken if the crisis drags on.
The broader index of all issues on the Tokyo Stock Exchange's first section lost 23.20 points, or 1.90 percent, to close at 1,148.67 Thursday. The index rose 1.27 points, or 0.10 percent, on Wednesday.
A record 2.86 billion shares changed hands, topping the previous record of 2.854 billion shares in July 1988. Retail investors scrambling to take profits on cheap shares accounted for the volume, Nishi said.
Declining stocks overwhelmed gainers 1,341 to 177, and 42 issued ended unchanged.
In currencies, expectation U.S. interest rights could rise briefly lifted the dollar above 109 yen in Tokyo trading for the first time since March 16.
The euro was trading at $1.1972 late Thursday in Tokyo, up from $1.1936 Wednesday. Against the yen, the common European currency was quoted at 129.82 yen, up from 127.98 yen.
The yield on Japan's benchmark 10-year government bond fell to 1.5100 percent late Thursday from 1.5450 percent Wednesday. Its price rose 0.30 to 99.91 points.
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