Tokyo: Nikkei drops to 2-week lows as US bond yields soar

[TOKYO] Japan's Nikkei fell to its lowest close in two-weeks on Friday, tracking weakness on Wall Street as rising US Treasury yields have dimmed the allure of most stocks except financial ones.

The Nikkei share average ended 0.8 per cent lower to 23,783.72, the weakest close since Sept 20. Earlier this week, the index traded above the 24,000 mark and hit 27-year highs.

The banking sector surged 1.1 per cent on Friday and was the board's biggest gainer with Chiba Bank surging 3.1 per cent and Shizuoka Bank 2.8 per cent.

Japanese banks - and particularly regional ones - gained after advisers to Prime Minister Shinzo Abe presented a rough draft on policy ideas that included consolidation of regional banks.

But overall, analysts said the stock market had become overbought in a very short timeframe, leaving shares vulnerable to profit-taking.

"The Japanese market is in a difficult position," said Masayuki Doshida, senior market analyst at Rakuten Securities.

"Japanese shares tend to track strong performances in the US where the economy is strong. But at the same time, when people become risk-averse on fears that many emerging market economies would suffer due to rising US interest rates, Japanese shares are sold too."

Doshida said that when Japanese shares have matched gains in of US ones, it is tough to expect further rises unless there's a positive factor specific to Japan.

He added that whether the Topix, which has hit eight-month highs, can rally to new highs depends on first-half earnings. On Friday, the Topix dropped 0.5 per cent to 1,792.65.

The Nikkei fell 1.4 per cent for the week after posting three straight weekly gains, rising 7.9 per cent in total.

US Treasury yields kept climbing to multi-year highs on Thursday's latest round of strong US economic data. Now the focus is Friday's September payrolls report.

Japanese tech shares and suppliers to Apple Inc fell after their US counterparts lost ground overnight.

Tokyo Electron declined 2.6 per cent, Advantest Corp tumbled 4.1 per cent and Murata Manufacturing shed 3.9 per cent.

Insurers and banks, which hunt for high-yielding assets such as foreign bonds, continued to rally after the yield on the US benchmark 10-year note hit 3.232 per cent, making its largest one-day jump since the 2016 US presidential election.

T&D Holdings rose 1.5 per cent, MS&AD Insurance gained 1.2 per cent and Mitsubishi UFJ Financial Group added 1.2 per cent.

REUTERS