Tokyo stocks fell Thursday, weighed down by concerns over prolonged monetary tightening in the United States, while Japan's benchmark long-term interest rate rose to a 10-year high.
The yield on the benchmark 10-year Japanese government bond rose 0.025 percentage point from Wednesday's close to 0.745 percent, the highest level since September 2013, tracking an increase in long-term U.S. Treasury yields, ahead of the Bank of Japan announcing on Friday the outcome of its two-day policy meeting.
The 225-issue Nikkei Stock Average ended down 452.75 points, or 1.37 percent, from Wednesday at 32,571.03, extending its losing streak to three days. The broader Topix index finished 22.59 points, or 0.94 percent, lower at 2,383.41.
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 at around the mid-148 yen level in Tokyo, as the outcome of a key Federal Reserve policy meeting raised expectations of a widening interest rate differential between the United States and Japan.
At 5 p.m., the dollar fetched 148.24-26 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 $1.0655-56 and 157.96-158.00 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 tracked an overnight decline on Wall Street after the Fed policy meeting increased concerns that the central bank will maintain its hawkish stance. The Fed decided to keep rates steady as widely expected but signaled a potential hike within the year.
The bank also indicated rates next year could be higher than markets had expected, 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 markets reacted to the Fed's latest projection of reducing the number of rate cuts" to two times from four expected in June amid concern over ongoing inflationary pressures, said Shingo Ide, chief equity strategist at the NLI Research Institute.
Meanwhile, investors remained cautious over "to what extent BOJ Governor (Kazuo) Ueda will hint at" altering the bank's ultraloose monetary policy, while it is widely expected to keep intact its current measures.
In a recent newspaper interview, Ueda said ending the bank's negative interest rate policy as part of its monetary easing measures would be an option if sustainable price rises accompanied by wage increases are achieved.
Stocks extended their losses in the afternoon, with the Nikkei index falling nearly 500 points at one point, amid a decline in other Asian markets and U.S. stock futures, analysts said.
High-tech issues in particular were lower as they tracked an overnight slump of their U.S. peers. Advantest dropped 430 yen, or 2.6 percent, to 15,800 yen, and Tokyo Electron slipped 225 yen, or 1.1 percent, to 20,500 yen.
Bucking the downward trend, financial issues drew buying, as higher Japanese government yields raised the prospect of improved profits. Mitsubishi UFJ Financial Group gained 17.0 yen, or 1.3 percent, to 1,318.0 yen, and Mizuho Financial Group rose 25.0 yen, or 0.9 percent, to 2,674.5 yen.
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