Nikkei tumbles on strong yen; fall in US bond yields raise concerns

Thu May 15, 2014 11:00pm EDT

* Nikkei turns negative on week, strong yen hits exporters
    * Fall in U.S. stocks, yields raise concerns
    * Financials lead losses, SMFG down 3.5 pct
    * Support in Nikkei seen around 14,000

    By Hideyuki Sano
    TOKYO, May 16 (Reuters) - Japanese shares stumbled on Friday
as the combination of a stronger yen and a second day of
declines on Wall Street depressed sentiment, leaving the market
poised for the third-week of losses in the past month. 
   The yen strengthened to a one-month high, which often
causes knee-jerk selling as a stronger currency crimps
exporters' incomes.
    Indeed, exporters tumbled in early trade and weighed on the 
Nikkei share average, which fell 1.6 percent to
14,065.27, moving further away from a one-week high of 14,464.01
hit on Wednesday. The benchmark is on course to post its third
week of losses in the past four weeks.
    The poor start to trading came after U.S. stocks fell for
the second day.
    Some analysts also raised concern about the continued fall
in U.S. Treasury yields and the implications for growth in the
world's biggest economy.
    "What's making many investors nervous is a big fall in U.S.
bond yields in recent days, which run counters to the consensus
view that the U.S. economy will lead global economic growth.
People are starting to worry if it is a sign of a weaker
growth," said Tetsuro Ii, the president of Commons Asset
Management.
    Benchmark U.S. Treasuries yields fell to six-month lows on
Thursday. 
    The fall in U.S. and European bonds yields are thought to
largely reflect expectation the Federal Reserve will keep easy
policy for an extended period, and on expectations the European
Central bank will cut rates next month. Still, the
head-scratching fall in U.S. yields are starting to worry some
investors that it may indicate the economy is not as rosy as it
seems. 
    A healthy U.S. economy would be crucial to Japan's recovery
at a time when investors are counting on exports to offset the
negative impact from a domestic tax hike in April.
    The Tokyo Stock Exchange's all 33 sector subindexes fell on
Friday, led by losses in banks and brokerage firms
 
    SMFG fell 3.4 percent and Mizuho Financial 
2.0 percent while Nomura Holdings and 2.4 percent.
    Among exporters, Toyota Motor Co fell 2.4 percent
while Sony, still smarting from its poor earnings 
announced earlier this week, fell 3.4 percent.
    Sumco Corp bucked the trend, climbing 6.4 percent
in heavy trade after it raised its half-year profit outlook,
citing strong demand for its silicon wafer part products for
smart phones.
    Many analysts expect fairly strong support in the Nikkei
around 14,000, and its April low around 13,885.
    Demand from Japanese retail investors should provide
support, they say, given that the market's valuation looks
fairly cheap around that level.
    Prime Minister Shinzo Abe is due to unveil a package of  
structural reforms in June, which will form the third arrow of
his policies to revitalise Japan's economy. The other two,
fiscal and monetary stimulus, are already in place.
    "I think the market is unlikely to fall below the April low.
But at the same time, I don't really expect buying to pick up
momentum until next month due to uncertainty on growth
strategies," said Takashi Oba, senior strategist at Okasan
Securities.
    The broader Topix fell 1.9 percent while the new
JPX-Nikkei Index 400 shed 1.8 percent.

 (Editing by Shri Navaratnam)
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