Japanese stocks on Friday tumbled to their lowest since the post-quake rout in March as investors ran for exits after the worsening financial crisis in Europe compounded anxiety over a weak U.S. economy that has come close to stalling.
Retail investors and foreigners were spotted offloading aggressively, but institutional players were not completely liquidating their positions, instead continuing to slash riskier bets and protect their portfolios.
While 32 of 33 subsectors on the Topix .TOPX were lower, fund managers shifted into retailers and other domestic demand related shares, selling commodity stocks including oil refiners and trading houses, which were pummeled as U.S. crude prices dropped sharply.
"This is not only about some bad data from the U.S. economy -- look how Italian and Spanish CDS spreads have widened overnight -- that's what's really pushing the market down," said Takashi Aoki, a senior fund manager at Mizuho Asset Management.
Aoki added that Friday's sell-off was exacerbated by some contract-termination related to selling by hedge funds.
The benchmark Nikkei average .N225 fell 3.7 percent to 9,305.04, while the broader Topix dropped 3.3 percent to 809.32.
The Nikkei hovered around its support at 9,300, where the index stood for some time after a slide that followed the March 11 earthquake and tsunami. Soon after the open it hit an intraday low of 9,264.09.
For the week, the index shed 5.4 percent.
Analysts at brokerage CLSA said that below chart support at 9,300, major support is seen in the 8,800-8,900 area. A sharp fall through this level would open the door for a test of the next support level at 7,800, analysts said.
The broader Topix fell below the 800 mark for the first time since March 17, at one point dropping as far as 794.16.
The Dow and the S&P tumbled more than 4 percent on Thursday and the Nasdaq lost 5 percent on fears that the United States is facing another recession and that Europe's sovereign debt crisis is swallowing two of its largest economies.
The market's recent malaise stems from a number of factors. U.S. economic data has worsened, suggesting slowing growth from an already sluggish pace in the first half, while Europe's sovereign debt crisis has defied remedies and threatens to engulf the large euro-zone economies of Spain and Italy.
Fiscal and economic woes in Europe and the United States pushed the yen up near record highs on Thursday as investors sought the currency as a safe haven, prompting Japan to intervene in the forex markets and ease monetary policy to relieve pressure on the export-reliant economy.
But these efforts were negated by renewed concerns over the global economy after the U.S. market tumbled, reflecting bearish sentiment among investors.
"It makes sense to hold Japan stocks as long as U.S. markets are strong. But as the market cautiously awaits the outcome of U.S. jobs data on Friday, people are unloading risky assets," said Fumihito Akiyama, a fund manager at Sparx Asset Management.
"The Japanese government intended to support the stock market by intervening in the foreign exchange market, but the effects of this are fading."
Japanese Finance Minister Yoshihiko Noda on Friday repeated that he was closely watching yen moves, signaling Tokyo's readiness to continue with its yen-selling intervention that media said reached a record 4 trillion yen ($50.6 billion).
Oil shares nosedived, with Inpex (1605.T) falling 6.8 percent to 533,000 yen and Japan Petroleum Exploration (1662.T) tumbling 5.4 percent to 3,565 yen after oil dropped as much as 6 percent on Thursday, hit by worries of an economic slowdown.
Mitsubishi Corp (8058.T), Japan's biggest commodity trader, fell 2.9 percent to 1,932 yen. Itochu Corp (8001.T) was down 3.6 percent at 854 yen, while the industry's No.5 player Marubeni (8002.T) dropped 5.4 percent to 529 yen.
Trading volume was brisk amid the worst sell-off since the March quake, reaching 2.5 billion shares on the main board, the highest since May 13.
Last week's average daily volume was 1.7 billion shares.
Underscoring the bearish sentiment, as many as 1,576 shares declined, while only 69 shares, or just 4 percent of those listed on the first section, advanced.