Nikkei falls over 2 pct, strong yen saps confidence

* Nikkei falls closer to 16-mth low after yen hits 15-yr high

* Next support likely at 8,800, 8,697; resistance seen ahead

* Europe bank worries, politics also weigh on sentiment

By Aiko Hayashi

TOKYO, Sept 8 (BestGrowthStock) – Japan’s Nikkei average dropped more
than 2 percent on Wednesday as the yen’s advance to a fresh
15-year high against the dollar extinguished an upbeat mood
gained from last week’s better-than-expected economic data.

A revival of concerns over European banks and uncertainty
over the political situation in Japan added to the dour mood.

The Nikkei fell back towards a 16-month low below 9,000
logged last week, hurt by what some market analysts said was
selling of futures by short-term investors, though the index will
likely find support around 8,800, a level it tested and held a
few times in recent weeks.

“With the yen’s advance accelerating and worries about credit
risks in Europe heightening, the market is pressured by investor
concern about risk-taking,” said Kazuhiro Takahashi, general
manager at Daiwa Securities Capital Markets.

“If inaction by the government despite mentions of
intervention by some officials triggers a further advance in the
yen, it’s hard to think the situation will be fixed soon. As the
strong yen is a drag on Japanese stocks, the index could still
lose further ground.”

The benchmark Nikkei (.N225: ) ended down 2.2 percent or 201.40
points at 9,024.60 after falling as low as 8,997.63, back towards
a 16-month low of 8,796.45 hit on Sept. 1.

Global stocks had regained ground after
stronger-than-expected U.S. payrolls and manufacturing data last
week helped quell fears of a double-dip recession.

The broader Topix (.TOPX: ) lost 1.7 percent to 820.99.

A Wall Street Journal report reignited concerns about
European sovereign debt and banks’ exposure on Tuesday, sending
stocks down and lifting the low-yielding, safe-haven yen, franc
and dollar.

The dollar fell as far as 83.34 yen (JPY=: ) on Wednesday, a
new 15-year low and down 0.5 percent on the day, with traders
testing Japanese authorities’ pain threshold for currency
strength. [FRX/]

Bank of Japan Governor Masaaki Shirakawa reiterated on
Wednesday his reluctance to return to quantitative easing but
indicated the central bank was weighing its options on how to
deal with the economic impact from the yen’s strength.

On the political front, Prime Minister Naoto Kan is seeking
to fend off a challenge to his leadership of the ruling party
from veteran powerbroker Ichiro Ozawa, with a party vote set for
Sept. 14.

Markets are keeping a close eye on political developments as
it could spell a potential shift in how the country copes with
the strong yen, weak economy and huge public debt.

The Nikkei struggled to snap its downward trend, with
resistance lying ahead on technical charts.

Wednesday’s drop took the Nikkei below 9,190, around its
25-day moving average, which had served as resistance from August
until this week. The 25-day moving average is considered a proxy
for a one-month moving average and is closely watched in Japan.

Market analysts see strong support around 8,800, and after
that, the next target is 8,697, a 61.8 percent retracement of the
Nikkei’s rally from its March 2009 low to its April 2010 high.

The bottom of the Nikkei’s Ichimoku cloud lies around 9,500,
forming resistance for the index. Ichimoku charts are popular
with Japanese traders.


Shares of blue chip exporters lost ground. Investors fret
about a stronger yen as it eats into exporter profits and
undermines the sector’s competitiveness.

Sony Corp (6758.T: ) fell 2.2 percent to 2,458 yen and Canon
Inc (7751.T: ) shed 2.1 percent to 3,510 yen. Honda Motor Co
(7267.T: ) skidded 2.5 percent to 2,744 yen.

Many Japanese companies have assumed a dollar/yen rate of 90
yen and euro/yen of 110-115 yen in the year to March 2011.

Unicharm Corp (8113.T: ) lost 3.2 percent to 9,470 yen after
the maker of diapers and sanitary napkins said on Tuesday it
would raise up to 80.5 billion yen ($961 million) through an
issue of euroyen convertible bonds, triggering investor concerns
over a dilution to per-share value once the bonds are converted.

Unicharm set the conversion price at 11,650 yen.

Some 1.47 billion shares changed hands on the Tokyo
exchange’s first section, the lowest volume this week.

Declining shares outnumbered advancing ones by 7 to 1.
(Additional reporting by Shinichi Saoshiro; Editing by Chris

Nikkei falls over 2 pct, strong yen saps confidence