The weaker tone in risk conditions and a fresh dollar retreat were the dominant factors in pushing Japanese stocks lower on Friday.
Risk appetite deteriorated sharply during US trading on Thursday. There were rumours that US National Economic Council Director Cohn had resigned which reinforced a lack of market confidence in the US Administration.
In this environment, there were further concerns that prospects for economic and tax reform would be undermined further which would potentially damage growth. There was selling pressure on both equities and the dollar with USD/JPY initially sliding to below 109.70.
Firm US data releases had little impact even though the data suggested that the economy was gaining fresh momentum.
Risk appetite deteriorated further following reports of a terrorist attack in Barcelona. There was renewed selling pressure on equities as the S&P 500 index declined by around 1.5% while the US currency came under further pressure.
USD/JPY declined to below 109.50 during the US session as global defensive yen demand increased again.
Given these negative factors, there was inevitably downward pressure on Japanese stocks in early trading, although there was some relief from a recovery in oil prices.
Overall, the Nikkei 225 index opened over 1.0% lower before attempting to rally in early trading. There was fresh selling interest after the session break and the index eventually closed near opening levels as buyers maintained a cautious tone.
At the close, there was a loss of 232.22 points and 1.18% at 19,470.41, the lowest close for 3 months.
Friday’s US equity-market close will have an important impact on Monday with geo-political developments during the weekend also having an important impact on sentiment.
Nikkei 225 Index 4-Hour Chart