The Nikkei share average fell on Wednesday after a recent rally, pulled down by investors' growing impatience with the European Central Bank to act soon to stem the euro zone's debt crisis. Weak Japanese export data added to the pessimism. Having banked on some action by the ECB, investors had become a bit edgy for signs that the central bank will indeed agree details for a bond buying programme to bring down the high borrowing costs for countries like Spain and Italy.
"That's why people are taking profits today," said Kyoya Okazawa, head of equity and derivatives at BNP Paribas in Tokyo. The Nikkei dropped 0.3 percent to 9,131.74, taking the benchmark to below its five-day moving average at 9,143.02 and its 26-week moving average at 9,148.53.
Investors became edgy after the ECB on Monday quashed speculation about the shape any bond buying programme might take, saying it was premature as decisions had not been made. Previously, hopes of firm action by the ECB to ease the euro zone debt crisis had helped the Nikkei rebound more than 10 percent between July 25, when the index touched a seven-week low, and a three-month high hit on August 20. The Nikkei is up 8 percent so far this year.
Trade figures released on Wednesday cast more gloom over the outlook, as Japan's exports slumped the most in six months in July as sales to a debt-ridden Europe and a sluggish China dropped. "I don't know whether that data is economically, fundamentally meaningful but has given people a little bit of excuse to take money off the table," a senior trader at a foreign bank said.
But he said most of his business were buy orders, with his clients interested in trading companies and some financial names, which he attributed to short covering. Among banks, Sumitomo Financial Group rose 0.5 percent and Mitsubishi UFJ Financial Group added 0.3 percent. Fuji Media Holdings shed 3.7 percent and Dentsu Inc , Japan's largest advertising agency, fell 3.4 percent after Bank of America Merrill Lynch downgraded its ratings on the two companies to 'neutral' from 'buy' and lowered their price targets, citing expectations of slower demand in advertising from autumn.
A Deutsche Bank downgrade to 'hold' from 'buy' also weighed on Tokyo Electron Ltd, which lost 2.8 percent. Japan Tobacco Inc eased 0.5 percent, extending the previous session's 1.7 percent drop after the Wall Street Journal said the European Union is investigating whether a sale of cigarettes by a Swiss-based unit of Japan Tobacco to a firm linked to cousins of Syrian president violated its sanctions against Syria. The broader Topix index eased 0.3 percent to 762.73. Trading volume on the index was light, with more than 1.23 billion shares changing hands, the third lowest level this year. Investors were also cautious ahead of the release of the minutes of the latest Federal Reserve policy committee meeting on July 31-August 1.