* Nikkei drops 6 pct, Topix off 4.9 pct
* Incentive to buy Japan shares seen erased by strong yen
* Futures selling drags on cash market ahead of settlement
By Ayai Tomisawa
TOKYO, June 13 Japan's Nikkei share average
dived 6 percent and entered bear market territory on Thursday,
extending early falls after the dollar fell to a 10-week low
against the yen on worries the Federal Reserve may trim its
Selling was accelerated by a sell-off in futures ahead of
the settlement of June futures and options on Friday, market
The Nikkei dropped 5.8 percent to 12,516 by 0200
GMT, entering bear market territory, having plunged 20 percent
from a 5-1/2-year high hit on May 23.
Analysts said sentiment was hurt by the yen's strengthening
above 95 to the dollar, the upper limit of the 90-95 yen range
at which many exporters have based their assumptions for their
earnings this fiscal year.
A stronger yen erodes exporters' overseas earnings when
repatriated and hurts their competitiveness by making their
products more expensive.
"Whether the yen's strength will persist or not is a key. If
it does, companies' earnings will be trimmed, and investors are
extremely concerned that the incentive to chase the Japanese
market higher will be erased," said Hiroyuki Fukunaga, the chief
executive of Investrust.
On Wednesday, the dollar fell to 94.975 yen, its lowest
level since April 4.
"Investors are becoming risk averse on global assets," said
Yasuo Sakuma, portfolio manager at Bayview Asset Management,
adding that such weak sentiment may last as long as there are
concerns about the Fed scaling back its stimulus measures.
After the BOJ bought 19.8 billion yen ($207 million) in
exchange traded funds and 100 million yen worth of J-REITs on
Wednesday to support the market, some market participants noted
that there is some sense of security that if the market drops
sharply, the Bank of Japan will step in to support the market.
But Sakuma argues that such efforts by the central bank may
not have a long-lasting supportive impact on the market.
"No matter what right thing the BOJ does, the positive
impact won't last. Fundamental concerns are coming from overseas
... If the Fed decides to trim stimulus and once announced, the
market will probably fall, then hit the bottom, and will rise
again. Until then, sentiment will stay fragile," Sakuma said.
Exporters lost ground, with Toyota Motor Corp
dropping 3.8 percent, Panasonic Corp falling 4.3
percent and Komatsu Ltd shedding 3.4 percent.