(Bloomberg) -- Japanese stocks fell, halting a two-day rally, as a stronger yen and a rapid retreat in US shares damped demand for riskier assets.
The Nikkei 225 Stock Average dropped 0.7% at the close in Tokyo, while the Topix slid 1.1%. Technology firms including Hitachi Ltd. weighed on the market after the Nasdaq 100 declined more than 1%. Exporters also took a hit after the yen strengthened 0.4% against the dollar, taking its advance this month to 2.7%.
Banks dropped 2.8% as long-term yields fell after an auction of 30-year sovereign notes met decent demand. The S&P 500 wiped out its gains on Wednesday after a sale of US Treasuries underscored the fragility of markets.
“The Nikkei has been diverging from the US for some time, but today it’s moving in tandem,” said Masahiro Ichikawa, chief strategist at Sumitomo Mitsui DS Asset Management. “The gauge was in panic market, so no matter how the US moved, there was a large psychological desire to liquidate positions first.”
Both the Nikkei 225 and the Topix have recovered almost half of their losses since the end of July, when the Bank of Japan raised its key rate and unveiled plans to reduce bond purchases. The benchmarks are now down more than 15% from their records reached last month, after sliding into a bear market on Aug. 5 when losses exceeded 20%.
The Nikkei’s rally over the past two days has helped cool implied volatility, which hit its highest level since 2008 at the start of the week.
Technical charts suggest that Japan’s stock market may be approaching a bottom. The Nikkei on Tuesday formed a candlestick whose body was located within the range of the previous day’s, generating a so-called harami pattern that indicates a reversal during a downtrend.
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