TOKYO: Japanese shares reversed course to close lower on Tuesday, as a jump in US bond yields made investors cautious, prompting a sell-off in market heavyweights.
The Nikkei share average fell 0.27% to 28,257.25, after rising as much 0.9% earlier in the session. The broader Topix dropped 0.42% to 1,978.38.
"Sentiment was weakened by rising US Treasury yields. Investors thought the US market would fall this evening," said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities, adding mixed messages from the Bank of Japan after its policy meeting also weighed.
The Bank of Japan upgraded its inflation forecasts and flagged heightening chances the recent commodity-driven price hikes will broaden, the latest sign of its conviction Japan is emerging sustainably out of deflation.
US Treasury yields jumped along the curve during Asian trading hours, lifting the shorter end to new pandemic highs, as traders braced for the possibility of a hawkish surprise from the Federal Reserve.
Benchmark 10-year yields rose more than 6 basis points to 1.8550% and Fed funds futures dived as markets baked in a hike in March and three more by the end of the year.
Japanese shares traded in positive territory earlier in the session, tracking a solid finish overnight in European markets.
Uniqlo clothing store owner Fast Retailing ended 2.37% higher, while chip-making equipment maker Tokyo Electron edged up 0.08%. Technology start-up investor SoftBank Group gave up its gains to fall 0.4%.
Japanese railway operators climbed 0.59% even as Tokyo and its surrounding prefectures have sought further measures from the central government to help counter rising COVID-19 infections.
But airliners gave up early gains to end 0.62% lower.
Steel makers were the worst performers on the Nikkei, with Nippon Steel tanking 7.08%, JFE Holdings dropping 6.78% and Kobe Steel falling 6.8%.
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