Japanese shares drop as virus variant worries hit cyclicals

TOKYO: Japanese shares slumped on Tuesday, with weaker cyclical stocks outweighing gains in technology firms, as outbreaks of the highly contagious COVID-19 variant Delta raised concerns about a hindrance to global economic recovery.

The Nikkei share average fell 0.81% to 28,812.61, while the broader Topix lost 0.82% to 1,949.48.

"Investors are selling Japanese cyclical shares after losses in the Dow and European stocks. Since Japan does not have stocks that are equivalent to GAFA (big tech) shares, the market is not taking advantage of the Nasdaq's robust finish overnight," said Soichiro Matsumoto, chief investment officer for Japan at Credit Suisse Private Banking.

The Nasdaq and S&P 500 hit all-time highs overnight, led by big tech stocks including Facebook Inc and Amazon.com Inc, while the Dow Jones Industrial Average was dragged down by cyclicals.

"And, there are concerns around the spread of the COVID-19 variant. Prospects of Japan's economic outlook is specially bleak because the country is hosting the Olympics and its impact on the pandemic is unknown."

While Spain and Portugal imposed new restrictions on unvaccinated Britons, 80% of Australians faced tighter curbs due to flare-ups of the virus across the country. In Tokyo, the host of the Tokyo 2020 Olympic Games, two arriving athletes have tested positive for COVID-19.

Pandemic concerns hit cyclical shares such as steelmakers , with Nippon Steel losing 3.8%.

Department store chain operator Takashimaya dropped 4.7%, while rival Isetan Mitsukoshi shed 3.2%.

Oil exploration company Inpex plunged 4.7%, as oil prices dropped overnight on worries about slower fuel demand growth.

Decliners outnumbered advancers by a ratio of four to one.

Shimamura gained 4.8% after the casual clothing chain reported a return to profits in the three months to May from a loss a year earlier.