May 7, 2018 / 2:32 AM / 3 months ago

Nikkei drops on firmer yen; financials slip on falling U.S. yields

TOKYO, May 7 (Reuters) - Japan’s Nikkei share average dropped on Monday morning in choppy trade as investors returning from Golden Week holidays worried that the stronger yen could impact companies earnings estimates, while financials weakened on falling U.S. yields.

The Nikkei dropped 0.5 percent to 22,358.31 in midmorning trade, after opening a tad higher.

While Japan holidayed, the U.S. Federal Reserve held interest rates steady last Wednesday and expressed confidence that a recent rise in inflation to near its 2 percent target would be sustained, leaving it on track to raise interest rates in June.

“There was no surprise from the FOMC meeting, so the market’s attention has come back to the currency level,” said Isao Kubo, equity strategist at Nissay Asset Management, adding that investors are worried about Japanese companies’ earnings estimates which rely on dollar-yen levels.

A strong yen cuts back Japanese exporters’ profits made overseas when repatriated.

The dollar shed 0.2 percent at 108.91 yen, off its three-month high of 110.05 yen, after U.S. jobs and wages data did little to water down perceptions of strength in the U.S. economy.

Exporters lost ground, with Honda Motor falling 0.8 percent, Subaru shedding 0.9 percent and Panasonic Corp sliding 1.4 percent.

Financial firms, which hunt for higher-yielding products such as foreign bonds, stumbled after U.S. Treasury yields dropped to multiweek lows on Friday, before ending flat.

The securities sector tumbled 1.9 percent and was the worst performer on the board, while insurers dropped 1.5 percent. Nomura Holdings stumbled 2.8 percent and T&D Holdings tanked 3.5 percent.

Mining shares outperformed, with Inpex rising 1.1 percent and Japan Petroleum Exploration gaining 0.7 percent after oil prices were near late-2014 highs as a decision looms on whether the United States walks away from a deal with Iran and instead re-imposes sanctions on Tehran.

The broader Topix slipped 0.3 percent to 1,765.78. (Editing by Simon Cameron-Moore)

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