Tokyo stocks fell Thursday morning on concern that the U.S. Federal Reserve will prolong its policy of monetary tightening, while the 10-year Japanese government bond yield hit its highest level in 10 years.
The yield on 10-year Japanese government bonds briefly rose to 0.745 percent, the highest level since September 2013, tracking an increase in long-term U.S. Treasury yields.
The 225-issue Nikkei Stock Average fell 376.06 points, or 1.14 percent, from Wednesday to 32,647.72. The broader Topix index was down 18.54 points, or 0.77 percent, at 2,387.46.
On the top-tier Prime Market, decliners were led by precision instrument, mining and electric appliance issues.
The U.S. dollar hit a fresh 10-month high around the mid-148 yen level in Tokyo, as the outcome of the Fed's policy meeting raised expectations of a widening interest rate differential between the United States and Japan.
At noon, the dollar fetched 148.27-28 yen compared with 148.28-38 yen in New York and 148.13-15 yen in Tokyo at 5 p.m. Wednesday.
The euro was quoted at $1.0625-0628 and 157.54-59 yen against $1.0655-0665 and 158.11-21 yen in New York and $1.0689-0691 and 158.34-38 yen in Tokyo late Wednesday afternoon.
Stocks were mostly in negative territory, tracking an overnight fall on Wall Street, after the Fed decided to keep rates steady as widely expected, but it signaled a potential hike within the year after its two-day policy meeting.
The Fed also indicated rates next year would be higher than expected by markets, with sentiment further dented by Chair Jerome Powell's post-meeting remarks that the central bank was "prepared to raise rates further if appropriate," analysts said.
"The Fed's outlook and later remarks by the chair were taken by the markets as hawkish, with the bank expected to prolong its monetary tightening until it can confirm that inflation has cooled," said Maki Sawada, a strategist in the Investment Content Department of Nomura Securities Co.
Stocks extended their losses in the morning following a drop in U.S. stock futures, she added.
High-tech and chip-related issues were particularly lower as they tracked an overnight slump of their U.S. peers. Advantest dropped 380 yen, or 2.3 percent, to 15,850 yen and Tokyo Electron slipped 165 yen, or 0.8 percent, to 20,560 yen.
Bucking the downward trend, financial issues drew buying, as higher Japanese government yields raised the prospect of improved profits. Mitsubishi UFJ Financial Group surged 31.5 yen, or 2.4 percent, to 1,332.5 yen and Mizuho Financial Group rose 44.5 yen, or 1.7 percent, to 2,694.0 yen.
Some automaker shares benefited from the weaker yen as well as the ongoing United Auto Workers strike in the United States, which spurred hopes for higher sales of Japanese brands, analysts said.
Nissan Motor gained 4.4 yen, or 0.6 percent, to 693.9 yen.
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