Japan's Nikkei sinks nearly 6% on US slowdown fears

Japan's Nikkei share average fell nearly 6 per cent on Friday to post its worst session in more than four years, as fears of a US slowdown and uncertainties over the Japanese central bank's tightening path soured appetite for risk assets.

The Nikkei closed 5.81 per cent lower at 35,909.7, marking its lowest close since January 26 and biggest one-day percentage fall since March 2020.

The broader Topix fell 6.14 per cent to 2,537.6 in its biggest one-day drop since March 2020.

"Momentum in the US market turned negative overnight, with concerns about recession rising. That weighed on Japanese equities a lot today," said Yugo Tsuboi, chief strategist at Daiwa Securities.

US stocks kicked off August sharply lower after a round of economic data spurred concerns the economy may be slowing faster than anticipated while the Federal Reserve maintains a restrictive monetary policy.

"In Japan, the market is uncertain about whether the BOJ will raise interest rates again this year and by how much," said Tsuboi, adding that higher rates could strengthen the yen and that could hurt exporters.

The Bank of Japan earlier this week raised its policy rate to 0.25 per cent and Governor Kazuo Ueda did not rule out another hike this year, driving expectations that the rate could rise to 0.5 per cent by the end of this year and 0.75 per cent in April.

The Tokyo Stock Exchange's growth market fell 7.25 per cent, and the exchange suspended trading of TSE Growth Market 250 index due to a circuit breaker.

Chip-making equipment maker Tokyo Electron tanked 12 per cent to drag the Nikkei the most. Chip-testing equipment maker Advantest slipped 8 per cent. Technology investor SoftBank Group lost 8 per cent.

All the 33 industry sub-indexes on the Tokyo Stock Exchange fell, with financials leading the losses. Brokerage and banking slipped 12 per cent and 11 per cent, respectively.

The Nikkei Volatility index rose as much as 35 per cent to its highest level since May 2022.