Japanese shares slump after hawkish Fed minutes, Toyota extends rally

TOKYO, Jan 6 (Reuters) - Japanese shares slumped on Thursday, as investors sold expensive growth stocks after hawkish U.S. Federal Reserve meeting minutes sparked a sell-off on Wall Street last night, while market heavyweight Toyota Motor extended gains to a third day.

By 0202 GMT, the Nikkei share average (.N225) had lost 1.7% to 28,833.71 and the broader Topix (.TOPX) had fallen 1.06% to 2,017.82. The Mothers Index (.MTHR) of start-up firms fell 3.64%, extending losses as investors shifted focus to bigger stocks.

U.S. stocks fell sharply overnight, with the Nasdaq down more than 3% in its biggest drop since February, after minutes of the Fed's last meeting signalled the central bank may raise interest rates sooner than expected.

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"Investors are shifting their focus to value stocks from growth, and they are targeting large and liquid stocks, which is why Toyota is still strong," said Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Research Institute.

"When the market outlook is not clear, investors tend to seek liquidity. Also, investors are using cash generated from selling bonds to buy shares with low risks and low returns."

Japan's benchmark 10-year government bond yield hit the highest since November 2021, tracking a steady rise in U.S. Treasury yields. read more

Rising interest rates increase borrowing costs for businesses and consumers. Higher rates can depress stock multiples, especially for technology and other growth stocks.

Toyota Motor (7203.T) rose 1.4%, adding more than 10% in the first three sessions of the year after a 32% jump last year.

Sony Group (6758.T) tumbled 6.51% after Wednesday's near 4% gain, and dragged the Topix the most.

Uniqlo clothing shop owner Fast Retailing (9983.T) lost 3.2% after its December sales for existing stores fell 11.1%.

Medical equipment maker Terumo tumbled 7.67% after Mizuho Securities cut its target price, while medical services platform M3 (2413.T) tanked 7.39%.

Airlines (.IAIRL.T) and railways (.IRAIL.T) took a hit, losing 1.69% and 1.39% respectively, as the number of new coronavirus infections have started rising. read more

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Reporting by Junko Fujita; Editing by Subhranshu Sahu

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