Nikkei average slips

The Nikkei stock average fell on Wednesday as Moody's Investors Service's downgrade of Japan's sovereign debt rating spurred some foreign investors to take profits, erasing intraday gains made on speculation of more US easing. "Japanese investors shrugged off the downgrade, but some foreign investors used it as an opportunity to lock in gains (in case further US economic support measures do not materialise)," said Toshiyuki Kanayama, a market analyst at Monex Inc.
Stocks also largely shrugged off news of Japan's $100 billion credit line unveiled on Wednesday to help companies cope with recent yen strength. The move had little affect on the foreign exchange market, with the yen slightly higher after it was announced. "What matters to Japanese stocks now is not so much if the US market goes up, but whether the dollar can go up," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"Foreign funds continue to 'sell Japan', which means selling Japanese stocks." US shares on Tuesday surged 3 percent on speculation that Fed Chairman Ben Bernanke will signal new help for the economy when he speaks on Friday at the central bank's annual gathering in Jackson Hole, Wyoming.
Traders said foreign investors were hesitant to take large positions before the event. "For the past few days, futures players are thought to have been engaged in arbitrage trading. They are trying to make profits within a 100-point range, and today it looks like they were selling when the index rose above 8,800," said a trader at a Japanese brokerage.
The benchmark Nikkei ended down 1.1 percent at 8,639.61, after rising as high as 8,825.27 in the morning session. The broader Topix shed 1.1 percent to 742.24. Volume was high, with 2.2 billion shares changing hands on Tokyo Stock Exchange's main board, compared with last week's daily average of 1.7 billion shares.
Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday ahead of the Tokyo open, blaming large budget deficits and a build-up of debt since the 2009 global recession. Tom Byrne, Moody's senior vice president and regional credit officer, said the agency had no plans to alter sovereign ratings for Japan in the next 12-18 months, adding that he saw no change in Japan's home-biased funding dynamics.
Moody's had warned in May that it might downgrade Japan's Aa2 rating due to heightened concerns about its faltering growth prospects and a weak policy response to deal with bulging public debt, now twice the size of its $5 trillion economy. "Stock market investors had to a certain extent expected (the downgrade) could happen because Moody's had warned it might downgrade Japan's sovereign debt earlier," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Moody's also took negative action on most Japanese banks as it usually does after a sovereign downgrade. Some analysts also cited concerns about the impact of the Moody's move on lenders' holdings of Japanese government bonds. Sumitomo Mitsui Financial Group fell 1.8 percent to 2,170 yen in heavy trading.
Mitsubishi UFJ Financial Group dropped 2.9 percent to 332 yen. MUFG was also hit by news that the lender has lost $1.8 billion from its common stock investment in Morgan Stanley so far, at least on paper, according to a regulatory filing on Tuesday. Tokyo Electric Power Co plunged 7.7 percent to 386 yen and was the most actively traded stock by turnover, extending losses from the previous day.
A trader said some investors bought Tepco shares on margin in March when they fell to around 800 yen as they had expected the stock to bottom out. These investors have started selling, as the expiration date for these margin trades is nearing. But oil-related stocks outperformed after oil prices rose on Tuesday, with Inpex rising 1.2 percent to 475,000 yen and Japan Petroleum Exploration adding 1.7 percent to 3,050 yen.