Japanese share prices fell sharply on Thursday, after disappointing US data added to suspicions that the global economy may be losing traction, prompting traders to shun risk assets. Tokyo shares were not helped by simmering political uncertainty after Japanese Prime Minister Naoto Kan survived a no-confidence vote by offering to resign once he has overcome the worst of the country's nuclear crisis.
The Nikkei share average fell 1.7 percent to 9,555.04, giving up a large portion of the gains accumulated over the past two sessions. The broader Topix dropped 1.6 percent to 825.76. The fall was slightly smaller than the 2.2 percent decline in the Dow Jones industrial average on Wednesday, which analysts say is natural given that Japanese shares underperformed during the rally in the US and in other developed countries' stocks in recent months.
Wall Street shares made a dismal start to June, typically a weak month for the market, after both private payroll data and a key manufacturing survey missed estimates. The data, raised suspicions that the confluence of the end of the Federal Reserve's bond buying, tightening in many emerging economies and supply chain problems after Japan's earthquake could lead to a deeper slowdown than many had thought.
With a string of data out of the United States undershooting market expectations, traders were reluctant to take risk, worrying that Friday's payroll data could disappoint again and cement such worries. "The US housing market is already hitting a double-dip. The economy may have appeared to be doing well but the reality is the US has recovered only one million jobs after having lost 8.5 million jobs since the 2008 financial crisis," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.
In the Nikkei, support is seen around 9,400, a low hit in late April and May. Many market players say there are few reasons to sell sharply below that level as Japanese shares are already trading at around book value. But participants also said buying by foreign investors - a major driving force behind the Nikkei's rebound from a two-year trough right after the earthquake and nuclear accident in March - appears to be waning.
Data from Japan's Ministry of Finance showed on Thursday that foreign investors sold a net 83.2 billion yen of Japanese shares last week, their first net selling in nine weeks in the data series. Some analysts said Japan's political mess is hardly encouraging risk appetite.
Although a last-minute deal with ruling party rebels enabled Kan to stay in the office for a while, market participants said that political uncertainty would continue. Other analysts said, however, the Nikkei may not be impacted too much by the outcome of the no-confidence vote. "The market may not be affected significantly by the outcome of the vote. The state of the US economy and Greece's budget problems will likely remain its key drivers in the mid-term," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.
In Thursday trade, carmakers underperformed hit by weak US May sales, with Toyota Motor Corp falling 3.3 percent to 3,270 yen, Honda Motor shedding 2.4 percent to 3,045 yen and Nissan Motor Co slipping 3.2 percent to 781 yen.] Drinks maker Ito En gained 1.7 percent to 1,407 yen after saying it expects to post gains in both sales and profits for the business year ending in April 2012. The firm expects sales of 360 billion yen ($4.5 billion), up 2.4 percent.