TOKYO: Japanese shares tumbled to six-month lows on Friday and could log their worst performance since the March 2011 tsunami and nuclear disaster after a rout in US tech shares spurred selling by momentum players.
Fast Retailing, the benchmark Nikkei heavyweight and casual clothing giant, sank after it cut its full-year operating profit forecast when investors are already getting nervous about fallouts from a sales tax hike this month.
The Nikkei fell as much as 2.9% to 13,885.11, its lowest level since early October, having fallen nearly 8% so far this week.
If the losses are sustained, the Nikkei is on course to post its biggest weekly fall since the week after devastating tsunami and nuclear disaster hit the country in March 2011, when the Nikkei fell 10.2%.
"The sentiment was already weak after the Nikkei was unable to maintain gains yesterday and then we had a sharp fall in the Nasdaq. Momentum players are jumping onto this," said a trader at a Japanese brokerage firm.
Momentum investing entails buying stocks that are already trending higher, often taking their price/earnings ratios to extreme highs. When the mometum turns it can do so viciously as investors rush to sell at the same time.
The Nasdaq index dropped 3.1%, suffering its biggest drop in 2½ years on Thursday after their sharp gains last year made their valuation expensive.
Yet, the Nikkei is performing worse than the Nasdaq so far this month, as Japanese shares are even more susceptible to profit-taking after outsized gains last year, when the Nikkei rose 57%.
The Nikkei has fallen 6.2% since the start of April, slightly more than the 5.8% in the Nasdaq.
Bulls think bottom-fishing should emerge soon given that the valuation of Japanese shares are hardly expensive, with the Nikkei's P/E at around 13.
But they think a rebound may have to wait until traders see clearer evidence that the economy is in decent shape, both in Japan and globally.
"We will have to see whether the US economy is gaining traction after the impact of a cold winter fades," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
The yen strengthened to 101.40 yen to the dollar, just shy of last month's double top near 101.20 and not far from year-to-date high of 100.755 hit in early February.
Fast Retailing fell 6.8% after it cut its full-year operating profit forecast as sales at domestic stores of its Uniqlo casual wear brand fell below expectations, even though the firm said it saw a limited impact from the sales tax hike.
Another Nikkei heavyweight, SoftBank, shed 4.8% while high-end department store operator J. Front Retailing fell on reports of a sharp drop in sales this month after the sales tax hike.
The yen's gains in the past few sessions are also thought to be weighing on the market, though carmakers generally fared better than electronics makers.
Toyota and Honda both fell 0.6% while Panasonic fell 2.1%.
The broader Topix index fell 1.3% while the new JPX-Nikkei Index 400 dropped 1.3%. – Reuters