Japanese stocks gave up early gains and ended lower on Wednesday, with the broad Topix index hitting its lowest level since the March earthquake as foreign investors showed little sign of slowing their retreat from the market.
Foreign investors, looking to cut risk in their portfolios, have sold into any rally on worries over persistent yen strength, with data showing investors continue to retreat from Tokyo stocks seen likely to be more volatile than the broader market.
Foreigners continue to sell because they fear the effect the strong yen will have on companies' earnings, Yutaka Miura, a senior technical analyst at Mizuho Securities.
Miura said depending on developments in Europe, the benchmark Nikkei average could also fall through support this month at its March 15 intraday low and test 8,000.
The stubbornly high level of the safe-haven yen has cast a cloud over the profitability of Japanese exporters and also put off foreign investors who fear the yen's strength will erode any capital gains from appreciating equity prices.
The Nikkei .N225 closed down 0.9 percent while the broader Topix .TOPX fell 1.4 percent. It broke below the 725.9 hit after the March disaster but closed above that mark.
Wednesday's drop in the Nikkei came despite a late rally on Wall Street overnight on reports that European finance ministers were examining ways of coordinating bank recapitalisation, as worries escalated over Franco-Belgian financial group Dexia SA.
Concern about the health of the global financial sector, the rising prospect of a Greek default and a struggling economy have given few incentives for investors to bargain-hunt in stocks and weakness has also extended to this year's winners.
Fast Retailing 8883.T, operator of the Uniqlo budget fashion chain, retreated 4 percent after posting poor same-store sales numbers, prompting further profit-taking in one of the few stocks trading in positive territory this year. The stock's drop left it up 2.8 percent for the year.
NO TAKERS FOR BETA
Softbank Corp, which will soon no longer be the sole provider in Japan of Apple's iPhone, was the second-biggest drag for the benchmark, losing 4.4 percent.
KDDI, Japan's second-largest mobile carrier, which is to sell the new version of the iPhone, had received a boost when the news leaked over a week ago. But after the unveiling of the new version in California on Tuesday met with disappointment, KDDI shares slipped 0.9 percent.
Apple's latest version of the iPhone, the company's first major media launch since Steve Jobs stepped down, failed to wow investors and drew a lukewarm response from analysts and investors.
The three stocks contributed to just under half the decline on the Nikkei .N225 which fell 73.14 points to at 8,382.98.
High beta stocks, or those that have historically outpaced moves in the benchmark, were mostly lower. Consumer lender Aiful, the stock with the highest beta value among Nikkei constituents, was down 3.6 percent.
Financials saw no respite, with Mitsubishi UFJ Financial Group falling 1.8 percent to 325 yen and Sumitomo Mitsui Financial Group losing 2.3 percent to 2,066 yen.
Volume was in line with levels seen over the past week with 2.1 billion shares traded on the Tokyo Stock Exchange's main board. Market breadth remained weak with over seven shares declining for each one that rose.