Nikkei Falls On European Politics, Euro Zone Crisis

Japan’s Nikkei share average fell on Tuesday, weighed down by falling Asian indexes as political flux in Europe fanned fears of a widening euro zone debt crisis and investors were anxious ahead of a week of big financial events.

The Nikkei fell 0.8 percent to 9,468.04, while the broader Topix index lost 0.7 percent to 803.94. Market players said a sudden slide in Asian stocks signaled investors were jittery about the prospect of a destabilised Europe as well as Federal Reserve and Bank of Japan meetings to decide on further easing measures later this week.

“The issue here is we do have a lot of events ahead of us, but it’s in a context of a lot of foreboding and nervousness about key markets,” said a trader at a foreign bank.

The Dutch prime minister tendered his parliament’s resignation on Monday after disagreements over budget cuts, while France’s Socialist presidential candidate Francois Hollande, who promised to renegotiate a European budget pact, beat incumbent Nicolas Sarkozy in the first-round of polls.

“Whenever Europe looks shaky, investors start buying up yen, which leads to a sell-off of Japanese stocks,” said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.

Concerns about European banks weakened confidence in Japanese financial institutions, with Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group, Nomura Holdings and Dai-ichi Life Insurance Co Ltd shedding between 2 and 2.6 percent, Reuters reported.

The Nikkei average fell 65 points at the midday break while aggressive selling of Chinese stocks triggered a reversal of the Shanghai Composite Index early session gains and the dollar dipped below the 81 yen level.

“Investors are waiting for China’s next policy decision, but they’re not coming up with anything,” said Kenichi Hirano, operating officer at Tachibana Securities. “Real estate is still overpriced, making it difficult to introduce easing measures.The Chinese economy has become more complicated.”

Earnings forecasts from Japanese companies pushed some stocks against the tide, including Fujifilm Holdings Corp, which rose 1 percent after the Nikkei business daily reported a likely 27 percent increase in the film maker’s annual operating profit to 140 billion yen ($1.7 billion) for the fiscal year ending March 2013.

All Nippon Airways Co Ltd and the airline sector both gained 4 percent after the company said it would likely double its dividend to 4 yen for the year ended March 31 after hiking its operating profit forecast to 97 billion yen for the period.

The tech sector also bucked trends, with Shinko Electric Industries Co Ltd gaining 3.3 percent after the maker of semiconductor packages and lead frames lowered its operating loss forecast to 3.7 billion yen ($45.6 million) from 5.5 billion yen (approximately $ 70 million) for the year ended March 31 on improving margins.

Chip equipment maker Advantest Corp surged 5.9 percent, with traders citing a Nikkei newspaper report that the company’s shipment of testing units for smartphone chips increased in the January-March quarter.

Volume was thin and similar to the previous two sessions, with 1.53 billion shares traded on the main board. Market participants said investors are hesitant ahead of a BOJ meeting on Friday to decide whether to implement further easing measures.

Reflecting on the concerns over Europe, the Nikkei volatility index climbed 5 percent to a one-week high. The higher the volatility index, the lower the risk appetite.