The Nikkei average hit a 16-month closing low on Wednesday, at one point falling over 2 percent, as disappointment spread over the lack of policy action by Japan to rein in the strong yen, which threatens a fragile economic recovery. Hopes for action by the government and the Bank of Japan on the yen, which rose to a 15-year high on Tuesday, had provided early support after the Nikkei business daily reported that the Ministry of Finance may consider unilateral yen-selling market intervention if speculators drive up the yen.
Noda, who met with Prime Minister Naoto Kan and Chief Cabinet Secretary Yoshito Sengoku, said he had not received any specific instructions from Kan on currency issues, adding that he could not comment on the chance of Japan intervening in forex markets.
The Nikkei pared losses slightly in late trade, though, after government sources said Japan was not ruling out forex intervention as a policy option. The benchmark Nikkei shed 1.7 percent to 8,845.39, its lowest close since late April 2009, though still well above the 26-year closing low just over 7,000 hit in March 2009. The broader Topix lost 1.3 percent to 807.31. The Nikkei has lost some 3.6 percent so far this week.
The dollar recouped some ground to 84.34 on electronic trading platform EBS after hitting a 15-year low of 83.58 yen the day before. The benchmark Nikkei broke below 9,000 on Tuesday for the first time since May 2009. The 9,000 to 9,100 area had been strong support since last year, and market players said there were few technical targets to break the benchmark's fall.
By some technical measures, the Nikkei is also starting to look oversold and perhaps due for a bit of a rebound. Its relative strength index (RSI) fell to 32, with 30 and under considered oversold, while its slow stochastic fell deeper into oversold territory. The Nikkei also fell through its lower Bollinger Band.
Still, pessimism about global growth has become contagious in recent weeks after lacklustre US employment and consumer reports. Fears were reinforced on Tuesday by a report showing US existing house sales slid much more than expected in July after the government ended homebuyer tax credits.
Honda Motor Co and other exporters slid. Many Japanese exporters have set their currency rate assumptions around 90 yen per dollar for the financial year to next March, although Honda cut its assumption to 87 yen from 90 yen. A stronger yen eats into exporter profits when repatriated. Honda lost 3.1 percent to 2,718 yen, TDK Corp shed 3.2 percent to 4,240 yen and stepper maker Nikon Corp fell 2.6 percent to 1,372 yen.
Among other notable stocks, Nippon Sheet Glass sank 5 percent to 189 yen after it said it would sell up to 49 billion yen ($576 million) of new shares to raise funds to ramp up output of glass for emerging economies.
The offering will boost the number of shares outstanding by 35 percent. Trade picked up, with some 1.78 billion shares changing hands on the Tokyo exchange's first section, its highest volume in about two weeks. Declining stocks outnumbered advancing ones by nearly 3 to 1.
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