Nikkei in worst weekly drop since 2008, strong yen unnerves

By Reuters
February 12,2016
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A pedestrian holding an umbrella walks past an electronic board showing the graphs of the recent fluctuations of Japan's Nikkei average outside a brokerage in Tokyo, Japan, January 18, 2016. REUTERS/Yuya Shino

By Ayai Tomisawa

TOKYO (Reuters) - Japan's Nikkei share average stumbled to a fresh 16-month low in heavy trade on Friday, and posted the biggest weekly drop since 2008 as investors scrambled to dump risky assets after the dollar dived to a 15-month low against the yen.

The Nikkei <.N225> sank 4.8 percent to 14,952.61, the lowest closing level since October, 2014.

For the week, the Nikkei dived 11.1 percent, the biggest weekly drop since October, 2008.

Topix's volume was outstanding, with 4.704 billion shares changing hands, the largest since last August.

Japanese markets were closed for a public holiday on Thursday, when the dollar fell as low as 110.985 yen <JPY=>, its lowest level since October 2014 as fears of a global economic slowdown and concerns about stress in the banking system increased demand for safe haven assets.

Traders said that investors feared Japanese exporters' hopes of earnings growth will suffer if the yen strengthens further.

Automakers were hammered. Toyota Motor Corp <7203.T> fell 6.8 percent and Honda Motor Co <7267.T> dropped 5.5 percent.

According to analysts at Nomura Securities, when the dollar falls by 1 yen, it cuts Japan Inc's pretax earnings by 0.4-0.5 percent and pushes the Nikkei share average down by 400 points.

Masaru Hamasaki, head of market & investment information department at Amundi Japan, said the Nikkei could stay below the 15,000-line for the time being, with more potential seen on the downside.

Brokers were also battered, with Nomura Holdings <8604.T> diving 9.2 percent and Daiwa Securities <8601.T> tumbling 8.2 percent.

Japanese stocks' steep drop followed the Bank Of Japan's decision to adopt negative interest rates late last month, but the yen has gained as investors dumped riskier assets and look for safe havens amid the market turmoil.

Federal Reserve Chair Janet Yellen did little to help the dollar in her second day of testimony before U.S. lawmakers. While she said she still expects the Fed to gradually hike interest rates this year, she reiterated that policymakers were not on a "pre-set" path to return policy to "normal" given a worsening meltdown in global stock markets.

All of the Topix's 33 subsectors fell.

The broader Topix <.TOPX> dropped 5.4 percent to 1,196.28 and the JPX-Nikkei Index 400 <.JPXNK400> fell 5.6 percent to 10,780.40.

(Editing by Jacqueline Wong)