TOKYO--Tokyo's Nikkei Stock Average tumbled 6.4% Thursday, turning the once high-flying shares into a bear market amid concerns that a winding down of the U.S. Federal Reserve's easing program will hit global growth.
It was the sixth loss for the market in the last seven sessions as falling equity prices and declines in the dollar-yen exchange rate fed off each other, depressing both. The dollar was at Y94.34 at the stock market's close, down from Y96.08 in late New York trading Wednesday.
Shares are now more than 20.4% below the year's closing high of 15627.26 reached on May 22, a level commonly seen as a bear market, suggesting further declines ahead.
The selloff began from the opening bell, with traders citing nervousness that the Fed will reduce its monthly bond purchases in the coming months, removing a key stock-market support.
"There is no clear downside target unless there is more clarity over the Fed's policy," said Shigeo Sugawara, senior investment manager at Sompo Japan Nipponkoa Asset Management.
Losses gathered pace as falls in the stock market pushed the dollar down against the yen, which in turn contributed to further selling in equities.
"The severity of the current market correction is difficult to fully predict, as the dollar's rise from November was simply too much, too fast," said Takako Masai, head of market research at Shinsei Bank.
The markets have been highly volatile since late May after doubts began to emerge about how well Prime Minister Shinzo Abe's economic program would pull Japan out of its years of stagnation.
The sharp slide in shares comes as a harsh end to a nearly unprecedented rally that saw the market rise more than 80% since mid-November. The start of the euphoria came when Mr. Abe, then running for office, began to talk of the need for massive monetary easing to pull Japan out of 15 years of deflation that has sapped growth. That sent the yen lower--good news for Japan's exporting industrial giants.
But some stock traders said Japan's economy--which has been showing solid growth--isn't the market's main concern.
"The issue for stocks is less about 'Abenomics' and more about an ongoing correction in the currency market, in which the dollar and yen are still trying to find appropriate levels while factoring in overseas central-bank policy," said SMBC Nikko Securities general manager of equities, Hiroichi Nishi.
Traders said that despite the wild price swings, trading volume was actually light with just 3.26 billion shares, worth Y2.7 trillion, changing hands on the TSE's first section, or Topix, a sign that big foreign funds were not behind the selling.
"The numbers suggest there is a lack of foreign institutional players in the market," said an equity trading director at a foreign brokerage.
Write to Brad Frischkorn at bradford.frischkorn@dowjones.com
NEWS SOURCE:http://online.wsj.com
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