Japan stocks down 2 pct, hit by yen, economy fears

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By Aiko Hayashi

TOKYO, Feb 29 (Reuters) - Japan's Nikkei average fell 2.3 percent on Friday to a one-week closing low, with Sony Corp (6758.T: Quote, Profile, Research) and other exporters taking a beating on a clouded earnings outlook after the dollar touched a three-year low against the yen.

Growing worries about the U.S. economy weighed on the Japanese market after Federal Reserve Chairman Ben Bernanke warned about the health of small U.S. banks, which hurt financial shares such as Mizuho Financial Group (8411.T: Quote, Profile, Research).

One bright spot was Seven Bank Ltd (8410.Q: Quote, Profile, Research), whose shares jumped 24 percent on their market debut after a $483 million IPO as subprime-rattled investors embraced the firm's low-risk model of earning fees from cash machines. [ID:nT91277]

Koichi Ogawa, a chief portfolio manager at Daiwa SB Investments, said the biggest reason for the day's fall was the strength of the yen, coupled with concerns about stagflation in the United States and higher commodity and oil prices.

"The problem is that Japan doesn't have sectors that get bought when the yen gets stronger. Instead, stocks here fall on concerns about earnings outlooks," he said.

"The Japanese economic outlook is also very weak as indicated by a series of downward earnings forecast revisions by domestic demand-reliant shares such as Aeon."

Ogawa said that while Japan needs measures to stimulate domestic demand, few investors expect such measures, putting additional pressure on the market.