Tokyo investors will focus on the US Federal Reserve's policy meeting next week looking for fresh trading cues following a big sell-off over the past week fuelled by fears over China's economy and the Ukraine crisis. The benchmark Nikkei-225 index lost 3.30 percent, or 488.32 points, to finish at 14,327.66 on Friday, losing 6.20 percent over the week, its biggest five-day drop in of the year.
The Topix index of all first-section shares fell 3.22 percent, or 38.76 points, to 1,164.70, marking a weekly drop of 5.84 percent. About half the Nikkei's losses came Friday as currency traders moved into the yen - seen as a safe-haven in times of turmoil - which is bad for exporters as it makes them less competitive overseas and shrinks repatriated foreign income.
China on Thursday released another set of poor indicators, just days after announcing a surprise trade deficit and slump in exports that have fuelled fears of a slowdown in the economic powerhouse and key driver of global growth.
In Europe the top diplomats of the US and Russia are due to meet in London to try to defuse the crisis over Ukraine with Moscow warned of a serious backlash over a referendum in Crimea on becoming part of Russia, a vote the West has called illegal.
The dollar slumped to 101.55 yen, from 102.85 yen in New York Thursday.
Wall Street also provided a negative lead, with the three main US indexes all tumbling on escalating Ukraine-Russia tensions and poor Chinese data.
"Japan shares are cheap, but it's not about valuations; it's about risk, and investors are now firmly back in 'risk-off' mode now," said SMBC Nikko Securities general manager of equities Hiroichi Nishi.
Toshihiko Matsuno, senior strategist at SMBC Friend Securities, told AFP eyes are now trained on next week's Fed policy meeting. "We will hardly see a clear direction until the meeting," he said.
"If you ask if Tokyo was particularly bad compared with other markets, I'd say the downtrend was overshot." The Nikkei surged 57 percent last year to its best annual run in over four decades. But the Japanese market has been wobbly since the start of 2014, with the headline index down about 12 percent.
Investors want to find out the Fed's view on the state of the world's biggest economy, and its plans for its stimulus programme.
The Nikkei's steep drop could lure bargain hunters back into the market, said Monex market analyst Toshiyuki Kanayama.
"The Nikkei is now firmly in the 'buy zone' - a level where the reward for picking up shares probably outweighs the risk of not doing so," he told Dow Jones Newswires.
"Buyers at current levels probably aren't going to be disappointed in a few weeks or months down the road." But he added: "Betting at times like these is really a game for the brave. Average investors just tend to sit these moments out."
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