TOKYO: Japan’s Nikkei share average fell 2% on Friday, tracking Wall Street’s decline overnight and on the yen’s strength.

The Nikkei was down 2.08% at 38,266.58 as of 0200 GMT and is poised to rise 0.9% for the week.

The broader Topix fell 1.3% at 2,660.53 and is set to post a 1.55% weekly gain.

All three US stock indexes closed lower on Thursday after Microsoft and Meta Platforms highlighted the growing artificial intelligence costs that could hit their earnings, curbing enthusiasm for megacaps that have fueled the market rally this year.

On Thursday, the Bank of Japan (BOJ) maintained ultra-low interest rates as widely expected, but its less dovish remarks lifted the yen against the US dollar overnight.

A stronger yen tends to hurt exporter shares as it decreases the value of overseas profits in yen terms when firms repatriate them to Japan.

“BOJ Governor (Kazuo) Ueda did not use the words he used to use yesterday, which the market took hawkish,” said Shuutarou Yasuda, a market analyst at Tokai Tokyo Intelligence Laboratory.

At the post-meeting news conference on Thursday, Ueda said he will not say the BOJ can “afford to spend time” before deciding when to shift the policy.

Some market participants took this as the BOJ opening the doors for a rate increase as early as December.

Technology investor SoftBank Group fell 5.25% to drag the Nikkei the most. Uniqlo-owner Fast Retailing slipped 2%.

Japan’s Nikkei tracks US peers lower; BOJ decision on tap

Chip-making equipment maker Tokyo Electron fell 3.59%.

The banking index edged up 0.13% and was the only sector that rose among the Tokyo Stock Exchange’s 33 industry sub-indexes.

Stocks that are supported by domestic demand posted smaller declines, with the energy explorers and the property sector losing 0.13% and 0.16%, respectively.

The auto sector fell 1.82%.

Tokai Tokyo’s Yasuda said the Japanese markets will remain volatile next week due to major events - the US Federal Reserve’s policy decision and the US presidential election.