* Investors wary after last week's volatility
* Yen-rebound hurts exporters
* Funds sell Topix and Nikkei futures - analyst
* Market jittery over Fed policy outlook - analysts
By Ayai Tomisawa
TOKYO, May 27 Japan's Nikkei share average
slumped 3.8 percent on Monday morning, as a rebound in the yen
hammered exporters in a market still on edge after last week's
turbulent trade sent the benchmark reeling to its worst loss in
The Nikkei dropped 555.14 points to 14,057.31 in
mid-morning trade, with support pegged at 13,981.52, an intraday
low hit on Friday's choppy session.
A combination of factors, including worries the U.S. Federal
Reserve will rollback its stimulus this year and weak factory
activity data from China, Japan's second-biggest export market,
triggered last week's selloff.
The Nikkei dropped 7.3 percent on Thursday, it's largest
single-day loss since the March 2011 earthquake and tsunami.
The sour mood continued to weigh on the market in early
trade, with S&P 500's decline for a third day on Friday and a
rebound in the yen further undermining sentiment.
"Negative sentiment is still lingering from worries that the
Fed's exit strategy," said Norihiro Fujito, a senior investment
strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Macro hedge funds, who bought Topix and Nikkei futures,
sold them last week and they are still selling them."
Exporters lost ground, with Toyota Motor Corp
dropping 1.1 percent while Sony Corp shedding 3.3
Securities firms also took a hit, with Nomura Holdings
and Daiwa Securities both dropping 3.5 percent
in sympathy with the weak market.
Analysts said that last week's turbulence was partly
exacerbated by high frequency trading by hedge funds such as
commodity trading advisors and retail investors engaging in
margin trade. As a result, investors are likely to remain wary
about further volatility, they said.
The broader Topix dropped 2.8 percent to 1,161.07.
The Nikkei has gained 35 percent this year and is up 14
percent since April 4, when the Bank Of Japan announced a
sweeping monetary expansion campaign to vanquish years of
deflation and revive growth.
Market players said those who were buying stocks and selling
the yen reversed their positions when the yield on the 10-year
cash bonds rose as high as one percent on
"Last week's shock will probably last throughout this week,"
said Kenichi Hirano, a strategist at Tachibana Securities. "But
the Japanese market's fundamentals in the mid-to-long term have
not changed, so there still is upside in the longer term."
As the weaker yen has improved the outlook for many
exporters, analysts expect an average operating profit rise of
30 percent, compared with the companies' conservative forecasts
of around a 20 percent increase in operating profits.
Many exporters have used assumptions of around 90-95 yen to
the dollar, while the dollar last traded at 100.85 yen.
The dollar posted its worst week against the yen in a year
on Friday but it is still well above what most companies were
expecting. The dollar was last traded at 101.02 yen.