Japanese stocks crumbled on Tuesday, extending the previous day's losses after surveys showed China's factory sector shrank for the sixth straight month in August while investors remained on edge ahead of key US data due throughout the week. Sentiment was also hurt by capital expenditures data that showed slowing investment in plants and equipment by Japanese companies.
The Nikkei share average closed 3.8 percent lower at 18,165.69, heading towards a six-month low of 17,714.30 hit last week. "The market remains almost shell-shocked after the volatility we've seen recently and having events on the horizon that could produce further volatility has people a bit on edge," said Stefan Worrall, cash equities manager at Credit Suisse. "China continues to be a source of some concern and Japan's capex data was also a bit deflating, but more so for policymakers than anyone else. The immediate focus for investors is policy response in the US"
Market players said investors are counting on Friday's release of US non-farm payrolls data to signal whether or not the US Federal Reserve may raise interest rates in September. Speculation over the timing of an expected rate hike has seesawed, but market participants said strong payrolls data on Friday would likely rekindle expectations around a September hike.
Investors dumped Toshiba Corp after the company further delayed release of its earnings for the year ending March, saying it had found new accounting irregularities. The stock fell 5.3 percent. Pharmaceuticals, one of the best performing sectors so far this year, dropped 5.4 percent, becoming the worst performing sector in the Tokyo Stock Exchange's 33 industry subindex.
Takeda Pharmaceutical fell 4.4 percent while Astellas Pharma dropped 5.8 percent and Eisai fell 7.5 percent. Food companies, a sector favoured by investors, sank 4.5 percent, with Japan Tobacco falling 4.1 percent and Meiji Holdings shedding 6.2 percent. The broader Topix dropped 3.8 percent to 1,478.11. Morgan Stanley affirmed its Topix target price at 1,740 and recommended investors raise weightings for Japan to buy back into the current weakness, which the house sees as overdone. Only 47 shares gained while 1,837 shares declined on the TSE's main board. The JPX-Nikkei Index 400 shed 4 percent to 13,267.48.