Tokyo: Shares see biggest daily drop in six weeks as yen firms on Fed view

[SYDNEY] Japanese shares suffered their biggest one-day fall in six weeks on Thursday as the safe-haven yen strengthened after the US Federal Reserve's dour economic outlook spooked investors.

The benchmark Nikkei average plunged 2.8 per cent to 22,472.91, its largest daily decline since May 1, moving further away from a 3.5-month closing high hit earlier in the week.

"The Nikkei's recent rapid rise to the 23,000-mark was not driven by inflows from real money investors. So when short-covering is done, a correction was inevitable," said Soichiro Matsumoto, chief investment officer Japan at Credit Suisse.

The Fed on Wednesday signalled that it plans years of extraordinary support for the US economy facing a pandemic-induced recession. Fed chair Jerome Powell said he was "not even thinking about thinking about raising rates" and that policy would have to be proactive with rates near zero out to 2022.

This pressured rate-sensitive financial stocks. Dai-ichi Life Holdings tumbled 6.8 per cent, while Mitsubishi UFJ Financial Group (MUFG) dropped 4.9 per cent.

In the currency market, the risk of more easing kept the US dollar under pressure, seeing it skid to a one-month low versus the safe-haven yen to trade at 106.90 yen.

As a firmer yen hurts Japanese manufacturers' profits made abroad when repatriated, shares of export-oriented carmakers came under pressure, with Nissan Motor diving 8.8 per cent and Mazda Motor shedding 6 per cent.

The broader Topix lost 2.2 per cent to 1,588.92, also posting its biggest one-day drop, with all but one of the 33 sector sub-indices on the Tokyo exchange finishing lower.

Highly cyclical sea transport, air transport and mining were the three worst performing sectors on the main bourse.

REUTERS