Nikkei slumps to 4-month low

Japanese shares sank on Thursday, with the Nikkei average hitting a four-month low, as SoftBank Group and highly valued stocks were pummelled by US inflation scare.

The Nikkei index dropped 1.84% to 27,628.73, hitting its lowest level since early January, while the broader Topix shed 0.61% to 1,866.57, touching a three-month low.

“Inflation worries are hitting high-tech stocks while rising domestic coronavirus infections are raising concerns about political stability. And, companies’ guidance is pretty soft,” said a strategist at a Japanese brokerage.

“But I do expect the market to bottom out soon. You can’t keep selling forever when earnings are still improving.” A shocking rise in US inflation published on Wednesday fanned worries US interest rates may need to rise sooner than expected.

That bludgeoned Wall Street overnight, especially tech shares whose high valuations have been based on the assumption of low interest rates, and hit Japanese equivalents as well.

SoftBank Group dropped 7.2% as concern over its frothy portfolio valuations eclipsed the fact that it has announced a record profit for a Japanese firm. Other richly valued shares, mainly from the tech and healthcare sectors, fell sharply, with medical equipment maker Terumo down 4.3%, chip-making machine maker Tokyo Electron losing 4.4% and lens maker Hoya dropping 3.2%.

Also hurting market sentiment, Japan is struggling to contain the COVID-19 pandemic, forcing dozens of towns to abandon plans to accept overseas athletes competing in the Olympics from July due to concerns about inadequate resources.

Earning results also continued to weigh on the market, with softer-than-expected guidance often enough to trigger big selling, dwarfing improving profits.