Japan's Nikkei average tumbled on Monday, falling below a key support level and erasing last week's gains, as fears of more turmoil in the Middle East and higher oil prices overshadowed solid US payrolls data. The resignation of Japanese Foreign Minister Seiji Maehara on Sunday over political donations added to troubles facing unpopular Prime Minister Naoto Kan but participants said it had no immediate impact on the market.
Despite a 22 percent rise in US oil prices over the last two weeks, Japanese stocks have so far proved largely resilient, and the Nikkei added 1.6 percent last week as investors reassessed risk within their equities portfolios instead of moving out of stocks altogether. "In terms of fundamentals, surging oil prices are of course bad for the economy, but concerns about inflation in emerging markets are actually helping divert money flows into developing economies, supporting Japan stocks," said Tadao Kimura, senior fund manager at Sumitomo Mitsui Asset Management.
"Also in terms of timing, a correction in the market was badly needed after it gained so much in recent months, so at this stage I'm not particularly worried about daily swings - it's natural that investors are a bit more nervous these days." On the other hand, analysts also said the cash market will likely be swayed by futures-led moves in the short-term as program traders such as commodity trading advisors have been behind volatile market moves amid surging oil prices.
The benchmark Nikkei fell 1.8 percent, or 188.64 points, to 10,505.02, dropping below immediate support of 10,537.09, the kijun line on its daily Ichimoku chart. At one point, the Nikkei hit an intraday low of 10,472.51. The broader Topix index shed 1.5 percent to 941.63. From a technical standpoint, the Nikkei is seen supported at its 13-week moving average of 10,441 in the short term, analysts said.
The chairman of Chinese drinks maker Hangzhou Wahaha said at the weekend he was considering buying a Japanese dairy firm, pushing Megmilk Snow up 2.3 percent to 1,505 yen and Morinaga Milk up 1.8 percent to 348 yen. Worries about Middle East tensions grew, helping US crude surpass $106 to reach the highest price in 2-1/2 years on Monday, as a counter-offensive by Libya's Muammar Gaddafi against rebels deepened concerns that a civil war could erupt in Africa's largest holder of oil reserves.
Japan's largest oil and gas developer Inpex Corp extended gains, adding 1.6 percent to 588,000 yen. It has surged some 24 percent so far in 2011 amid turmoil in the Middle East, outperforming the Nikkei's 2.7 percent gain in the same period. "With strong but not spectacular US payrolls we're seeing more signs of global recovery, but in the long term high oil prices can threaten the earnings of Japanese companies and that's what investors are concentrating on now," said Mitsuo Shimizu, deputy general manager at Cosmo Securities.
The unemployment rate in the world's largest economy fell below 9 percent for the first time in nearly two years, US government data showed on Friday. Oki Electric Industry soared 14 percent to 83 yen after the telecoms equipment maker, which expects a 28 billion yen ($340 million) net loss for the business year ending on March 31, said 1,018 employees had agreed to take early retirement. On the other hand, shares in the world's largest automaker, Toyota Motor Corp declined 2.4 percent to 3,695 yen in active trade after Standard & Poor's agency on Friday downgraded it to "AA-" from "AA" on weak profitability.
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