Nikkei falls 5% amid US economic concerns, Japanese monetary policy uncertainty

Japan's Nikkei share average tumbled 5 per cent on Friday, reaching a six-month low, following a significant sell-off on Wall Street triggered by concerns over the US economy. As of 0128 GMT, the Nikkei was down 4.7 per cent at 36,333.21, having earlier dipped as much as 5 per cent, marking its lowest point since February 7.

The broader Topix index also declined sharply, down 5.5 per cent at 2,554.85.

US stocks had fallen since the start of August, as recent economic data heightened worries that the economy might be slowing more rapidly than expected, even as the Federal Reserve maintains a restrictive monetary policy.

"Momentum in the US market turned negative overnight, with concerns about recession rising. That weighed heavily on Japanese equities today," said Yugo Tsuboi, chief strategist at Daiwa Securities. He also noted that the uncertainty over whether the Bank of Japan (BOJ) will raise interest rates again this year and by how much added to market anxiety. Higher rates could strengthen the yen, potentially impacting Japanese exporters.

Among the hardest-hit sectors were technology and financials. Chip-making equipment manufacturer Tokyo Electron saw a steep drop of 12 per cent, while chip-testing equipment maker Advantest fell 7 per cent. Technology investor SoftBank Group also declined by 6.8 per cent.

All 33 industry sub-indexes on the Tokyo Stock Exchange experienced losses, with financial sectors leading the decline. The brokerage sector fell by 11 per cent, and the banking sector decreased by 8.4 per cent.

The Nikkei Volatility Index surged to nearly 28 per cent, its highest level since April 19.

(With inputs from Reuters)