Tokyo stocks plunge on fears Fed's rate hikes to hurt U.S. economy

TOKYO, Aug. 29 (Xinhua) -- Japan's Nikkei stock index closed sharply lower Monday, below the psychologically important 28,000 line, following U.S. Federal Reserve Chairman Jerome Powell's remarks about the continuation of aggressive monetary policy stoking concerns about the future health of the U.S. economy.

The 225-issue Nikkei Stock Average dropped 762.42 points, or 2.66 percent, from Friday to close the day at 27,878.96, marking its lowest finishing level since Aug. 10.

The broader Topix index, meanwhile, fell 35.49 points, or 1.79 percent, to finish at 1,944.10.

Powell, during an annual policy speech at Jackson Hole, Wyoming on Friday, underscored the U.S. central bank's ongoing commitment to combating inflation, saying the central bank would use its tools "forcefully" with this being "no place to stop or pause" despite higher interest rates bringing "some pain to households and businesses," investment analysts here highlighted.

They said his remarks sent the U.S. S&P 500 and the tech-heavy Nasdaq tumbling late last week, with stock futures pointing towards U.S. shares further retreating Monday as all signs are pointing toward a hefty 75 basis-point rate hike at the Federal Open Market Committee's (FOMC) next meeting on Sept. 20-21.

Strategists here said that investors still betting the Fed would begin to ease its rate hikes this year led to a broad sell-off amid concerns the Fed's hikes to combat inflation, currently at a 40 year high, would impact the U.S. economy to the point it could fall into a recession.

"Investors were overly optimistic, expecting that the Fed would start curtailing rate hikes this year," Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co., was quoted as saying.

"Powell's remarks therefore shocked investors and led to selling all over Asia after the Dow dropped over 1,000 points," said Fujito.

He went on to say that Japanese shares may continue their downtrend on Tuesday.

From a longer term perspective, other strategists said, that if U.S. stocks rebounded, the market here would follow suit, but should U.S. markets remain under pressure, Japan's shares would retreat in the run up to the Fed's next policy setting meeting.

"There is a decent chance of a rebound in U.S. stocks today, from a technical perspective," Kazuo Kamitani, a strategist at Nomura Securities, said.

"If that's the case, Japanese stocks should also gradually rise. But if U.S. stocks fall again, Japanese stocks should continue to slide towards 27,000 heading into the next FOMC meeting," Kamitani said.

By the close of play, the majority of sectors on the Prime Market declined, with mining and oil and coal product issues the only to gain.

High technology issues followed their U.S. peers lower, with high-capped issues Tokyo Electron and Advantest diving 5.1 percent and 4.2 percent, respectively.

Nikkei heavyweights weighed on the broader market, with Uniqlo clothing store operator Fast retailing sinking 2.8 percent, while tech startup investor SoftBank Group slumped 3.7 percent.

Automakers gained on the yen's sharp fall versus the U.S. dollar, however, as exporters rely on a weaker yen to boost profits made overseas when repatriated.

As such, Mazda accelerated 1 percent, Subaru advanced 0.8 percent and Isuzu leapt 2.2 percent. Honda Motor, meanwhile, finished in positive territory after reversing early on, closing 0.4 percent higher.

On the Prime Market on Monday, 1,073.66 million shares changed hands, rising from Friday's volume of 855.51 million shares, with falling issues outpacing rising ones by 1,635 to 174, while 28 ending the day unchanged.

Trading volume on the first trading day of the week came to 2,594.92 billion yen (18.69 billion U.S. dollars).