* More voices on failure of Abenomics may be expected - analyst
* Long-short funds sell futures after yen rises further - trader
* Nikkei volatility index highest in 2-1/2 weeks
By Ayai Tomisawa
TOKYO, April 1 (Reuters) - Japan's Nikkei share average dropped on Friday morning to a one-month low after the central bank's quarterly corporate survey sapped risk appetite, dragging down stocks across the board.
Further weakening of the dollar against the yen hurt already sour sentiment, with overseas hedge funds such as long-short funds selling futures, according to traders.
The Nikkei stumbled 2.9 percent to 16,271.76 in midmorning trade, after hitting as low as 16,262.68 earlier, the lowest since March 1.
The Nikkei volatility index soared 18 percent to 26.86, the highest since March 15.
The Bank Of Japan's "tankan" survey of business confidence, published earlier on Friday, showed large manufacturers' business sentiment deteriorated to its lowest level in nearly three years and was expected to worsen in the coming quarter.
Traders said the survey outcome heightened calls for more stimulus but that the Bank Of Japan is running out of ammunition amid concerns about the stronger yen's impact on exporters' earnings. The bad news on corporate sentiment from the domestic market accelerated investors' risk-aversion, which is already driven by a slowdown in the Chinese economy and the prospect of U.S. rate hikes.
"There may be growing voices that 'Abenomics' has failed," said Nobuhiko Kuramochi, a strategist at Mizuho Securities. "There will likely be more pressure for the administration to come up with stimulus measures and more calls to delay the planned consumption tax hike."
After the dollar skidded more than 6 percent in the first quarter against the yen, it dropped 0.4 percent to 112.09 during Asian trade. A strong yen erodes Japanese exporters' profits earned abroad when repatriated, hammering exporter stocks. Nissan Motor Co fell 4.1 percent, Honda Motor Co tumbled 4.5 percent and Advantest Corp dived 5.2 percent.
Panasonic Corp nosedived 11 percent after it forecast that sales in fiscal year 2018 will miss a previously-set target by 12 percent amid global economic uncertainties.
Brokerage shares underperformed as well, with Nomura Holdings shedding 3.4 percent and Daiwa Securities falling 2.6 percent, respectively.
The broader Topix tumbled 2.9 percent to 1,308.63, with all of its 33 subindexes in negative territory.
The JPX-Nikkei Index 400 shed 3.0 percent to 11,797.70.
Editing by Sam Holmes