Nikkei drops as bond yield spike hits tech, property shares

Nikkei share average: Japan's Nikkei share average experienced a decline on Thursday as a sudden increase in bond yields negatively impacted the technology and property sectors. 

The Nikkei dropped by 0.5 per cent to 39,383.73 during the midday recess, reaching a low of 39,065.31 earlier in the day. The broader Topix also saw a slight decrease of 0.03 per cent, with a 0.25 per cent drop in the growth shares subindex TOPIX Growth offset by a 0.18 per cent rise in value shares TOPIX Value. 

Mizuho Securities' chief Japan desk strategist, Shoki Omori, stated that overseas investors have been taking profits from Japanese equities, citing stretched valuations and potential for further decline in the long run, possibly to around 37,500. 

With the Bank of Japan's recent stimulus exit reducing support for the local market, Omori believes there is no reason to invest in big tech stocks in Japan, as they tend to follow the trends of their US counterparts.

The benchmark 10-year Japanese government bond yield JP10YTN=JBTC reached a five-month high of 0.835 per cent, following a surge in US yields US10YT=RR after the release of consumer inflation data. This has caused some uncertainty regarding when the Federal Reserve will begin cutting interest rates.

In terms of individual stocks, chip-making equipment manufacturer Screen Holdings experienced the biggest decline, dropping by 3.5 per cent. Tokyo Electron, a larger peer, also saw a decrease of 0.7 per cent. Fast Retailing, the owner of Uniqlo, fell by 1 per cent ahead of the release of their financial results later in the day. Seven & i Holdings, the operator of 7-Eleven in Japan, saw a decline of 3.2 per cent after announcing plans to potentially list their superstore business. 

Mitsui Fudosan, a real estate company, was the worst-performing stock on the Nikkei, falling by 3.1 per cent. The real estate sector led the losers among the 33 industry groups on the Tokyo Stock Exchange, with a decrease of 1.7 per cent.

(With Reuters inputs.)