* Market braces for volatility on hedge funds' moves-
* BOJ's ETF buying could influence direction - analysts
* SoftBank, Fast Retailing sold before options settlement
By Ayai Tomisawa
TOKYO, Aug 7 Japan's Nikkei share average
slumped 2.6 percent to a one-week low on Wednesday morning as
exporters were hammered after the dollar fell to a six-week low
against the yen, while index heavyweights SoftBank Corp
and Fast Retailing Co were also sold off before
Friday's options settlement.
The Nikkei dropped 377.03 points to 14,024.03 in
mid-morning trade, reaching the lowest point since Aug 1.
Support is seen at its 75-day moving average of 13,992.41.
Blue-chip exporters Toyota Motor Corp shed 1.6
percent, Canon Inc slid 2.0 percent and Sony Corp
dropped 3.0 percent.
Analysts said that investors were wary of further yen gains
after the dollar hit a six-week low at 97.09 yen
earlier on Wednesday, led lower by the ongoing uncertainty about
when the Federal Reserve will start reducing its bond purchases.
It last traded at 97.29 yen.
A strong yen erodes Japanese exporters' competitiveness
overseas as well as their dollar earnings when repatriated.
The analysts were of the view that the Nikkei may slide
below 14,000 if the dollar broke below the 97-yen level.
"Hedge funds like commodity trading advisors are shorting
through some of the European brokerages," said Norihiro Fujito,
senior investment strategist at Mitsubishi UFJ Morgan Stanley
Securities. "They could also be selling index heavyweights to
lower futures prices before the Nikkei 225 options settlement on
Index bellwethers SoftBank tumbled 3.8 percent, Fast
Retailing fell 3.7 percent, and KDDI Corp slid 5.0
Market participants said the absence of major catalysts
could mean that the market could move on any development, such
as Tuesday's late surge led mainly by futures buying. The
Nikkei's reversal of its losses on Tuesday was partially driven
by a Reuters story that a Japanese pension fund might buy more
The Bank Of Japan's purchases of exchange traded funds also
supported Tuesday's rebound. The BOJ bought a combined 41.6
billion yen worth of ETFs on Monday and Tuesday.
"Anything can trigger hedge funds' short-covering. If the
BOJ starts buying ETFs in the afternoon again, the market may
see big volatility, so we need to be careful," said Fujito.
Investors are also looking to earnings news for cues, with
companies such as Kubota Corp and Marubeni Corp
expected to report results on Wednesday.
"Earnings overall have been good, so the results should
invite more buyers. But it may take some time for the market to
evaluate earnings," said Shun Maruyama, chief equity strategist
at BNP Paribas.
Analysts said many portfolio managers of pension funds and
mutual funds are absent from the market due to the summer
The Nikkei has risen 35 percent this year, underpinned by
the government's sweeping stimulus policies aimed at pulling the
world's third-largest economy out of two decades of stagnation.