Tokyo's Nikkei index slumps more than 4.5% on trade war fears

[TOKYO] Tokyo stocks plunge to a near six-month low on Friday as US President Donald Trump sparked fears of an all-out trade war after unveiling fresh tariffs against China, which in turn threatened its own measures.

Investors were also spooked by the replacement of Mr Trump's national security adviser HR McMaster with hawkish former UN ambassador John Bolton.

The benchmark Nikkei 225 index dived 4.51 per cent, or 974.13 points, to 20,617.86, the lowest since Oct 5 - marking a weekly loss of 4.88 per cent.

The broader Topix index dropped 3.62 per cent or 62.45 points, to 1,664.94. It lost 4.13 per cent over the week.

Mr Trump on Thursday unveiled tariffs of up to US$60 billion on Chinese imports, accusing Beijing of intellectual property rights violations.

"Given all the factors in the market, I think you have to expect a fall of this magnitude," said Makoto Sengoku, market analyst at Tokai Tokyo Research Institute.

"The Trump administration's tariffs against China. Mr McMaster leaving. There is a sense of caution towards the administration," he told AFP.

"People are worried about a possible trade war. Those are the factors behind Japanese stocks today. The dollar has breached below 105 yen. That's also a factor driving down Tokyo shares," he said.

The dollar dropped to 104.71 yen, dipping below the 105-mark for the first time since November 2016, as investors took refuge in the safe haven Japanese currency.

A strong yen weighs on the bottom lines of Japanese exporters, a key growth engine of the world's number-three economy.

"A trade war between the largest and second-largest economies would affect a lot of countries, including Japan," said Masakazu Satou, senior analyst at Gaitame Online.

"Since the yen broke the psychologically important 105 level, it is likely to gain further against the dollar as risk-off sentiment is expected to continue for now," he added.

The drop in Tokyo trade follows steep falls in global stocks, with the Dow closing down 2.9 per cent on Wall Street.

"The market was not in panic mode, but there was a chain reaction of selling," said Toshikazu Horiuchi, a broker at IwaiCosmo Securities.

"All eyes are on the opening of New York later today," Horiuchi told AFP.

Among major shares, Nippon Steel & Sumitomo Metal Corp dropped 3.68 per cent to 2,272.5 yen while rival JFE Holdings lost 3.56 per cent to 2,112 yen.

Construction equipment maker Komatsu plunged 6.31 per cent to 3,472 yen.

Toyota lost 3.54 per cent to 6,603 yen while Honda gave up 5.26 per cent to 3,471 yen.

AFP