Japanese shares drop as cyclicals drag, virus worries increase

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

The Nikkei share average fell 0.94% to 28,774.35 by 0208 GMT, while the broader Topix lost 0.90% to 1,948,03.

"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 shares, the market is not taking advantage of the Nasdaq's robust finish overnight," said Soichiro Matsumoto, chief investment officer Japan at Credit Suisse Private Banking.

The Nasdaq and S&P 500 hit all-time highs overnight, fuelled by big tech stocks such as 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. Among other individual sectors and shares, energy and steel indexes led the declines, while precision instruments makers traded higher among the Tokyo Stock Exchange's 33 industry subindexes.

Nexon Co Ltd, up 4.28%, rose the most on the Nikkei, followed by NEC gaining 3.69% and Fujitsu up 1.15%.

Yamaha Motor, down 5.42%, was the biggest loser on the Nikkei, followed by Takashimaya losing 4.75% and Yokohama Rubber down 4.52%.