Japan's Nikkei average slipped 1.5 percent on Tuesday to a four-month closing low, hurt by a fall in Nomura Holdings and after Wall Street slid to a 12-year low on fears about financial system stability. Investors mostly shrugged off a comment from Japan's finance minister that the government is studying measures to support the stock market, as the Nikkei briefly touched 7,155.16 - not far from a 26-year low just under 7,000.
Nomura, Japan's largest brokerage, fell 9 percent on dilution worries after announcing plans to raise $3.3 billion in its first share sale in 20 years, as costs from its purchase of Lehman Brothers assets force it to replenish its capital. But carmakers such as Toyota Motor Corp turned positive in late trade as the dollar surged to a three-month high against the yen, helping the Nikkei pare losses that at one point took it down 3 percent.
Despite the rise in auto shares, the overall mood was dark. "The situation has become a complete 'sell Japan' scenario, roughly since the GDP figures last week showed such a steep fall," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Securities. "With the consensus growing that first quarter GDP will fall by double digits as well, funds are fleeing Japan."
Japan's economy shrank at an annualised 12.7 percent in the last three months of last year, its biggest contraction in about 35 years, as exports slumped on vanishing global demand. The benchmark Nikkei shed 107.60 points to 7,268.56, its lowest close since October 27, bringing its losses for this year to 18 percent. The broader Topix lost 0.7 percent to 730.28, its lowest close since December 27, 1983.
The Nikkei's correlation with the dollar-yen has turned negative on a 90-day rolling basis on concerns about the economy, political uncertainty and ebbing demand for the yen. It had been strongly positive at the end of last year when the dollar and the Nikkei were plunging in tandem. Finance Minister Kaoru Yosano said the government is looking at stock buying and other methods to support the share market, but market players said they needed specifics.
"Everything depends on what sort of scale they're contemplating, but if they establish a stock-buying agency as they did once before, it's likely to have some kind of impact and keep the downside bolstered," said Takashi Ushio, head of the investment strategy division at Marusan Securities. Market players said there was talk that pension funds were buying at the lows, keeping the Nikkei from falling below 7,000 and testing a 26-year intraday low of 6,994.90 hit on October 28.
Tech shares dragged on the Nikkei for much of the day after their US peers fell on worries about diminishing corporate and private spending. Tokyo Electron lost 2.8 percent to 3,150 yen and Hitachi Ltd slid 4.5 percent to 234 yen. Canon Inc edged down 0.2 percent to 2,355 yen. Nomura fell 9.3 percent to 420 yen. But carmakers and some exporters turned positive in late trade, with Toyota up 2 percent to 3,090 yen and Honda Motor Corp up 2.6 percent to 2,215 yen.
Shin-Etsu Chemical also bucked the overall market trend, rising 1.7 percent to 4,170 yen after Goldman Sachs reiterated its "buy" rating and conviction list designation for the stock, citing the company's strength at times of economic weakness. Trade was active on the stock exchange's first section, with 2 billion shares changing hands, compared with last week's daily average of 1.8 billion. Declining stocks outpaced advancing ones by nearly 2 to 1.