* China’s devaluation triggers knee-jerk profit-taking
* Long-term implication of lower yuan not clear
* China-related shares outperform, steelmakers top gainer
* Food companies and drugmakers fall
By Hideyuki Sano
TOKYO, Aug 11 (Reuters) - Japan’s Nikkei share average edged down on Tuesday, erasing its earlier rise to near its 18 1/2-year high hit earlier this year, as investors took profits after the Chinese central bank devalued the yuan.
Market players say the move was more of a knee-jerk reaction to China’s sudden announcement with many market players still trying to figure out its long-term implications.
“This looks like profit-taking. The market normally needs a half day, or even a full day or longer to digest big news like this,” said Michiro Naito, executive director of equity derivatives and quantitative strategies at JPMorgan.
The Nikkei average dipped 0.2 percent to 20,761.03, after having risen 0.7 percent at one point to 20,946.93, just several points below its peak of 20,952.71 hit in late June.
The broader Topix fell 0.1 percent to 1,689.04 after hitting an eight-year peak of 1,702.83.
“The market’s rally may pause after the Topix hit the 1,700 mark. But fundamentally, the market is supported by solid earnings by Japanese companies so far,” said Hiroshi Ono, head of equity investment at Sumitomo Life.
A lower yuan is a double-edged sword for Tokyo shares. It could help Tokyo shares by boosting the Chinese economy. But a lower yuan relative to the yen could undermine Japan’s efforts to reflate the economy through easy monetary policy and a cheaper yen.
Investors booked profits on recent outperformers including drugmakers and food companies, which fell 1.4 percent and 1.6 percent respectively.
Companies with strong business ties with China were bought back on hopes of a new stimulus programme from Beijing.
Steelmaker shares, which have been hit by concerns on an economic slowdown in China, rose 2.4 percent to become the top performing sector of the Tokyo Stock Exchange’s 33 industry sub-indexes.
JFE Holdings rose 4.1 percent while Nippon Steel& Sumitomo Metal gained 2.7 percent. Construction equipment maker Komatsu also gained 2.0 percent.
Despite the latest rebound, steelmaker shares are still down so far this year and investors are not convinced just how much they can recover.
“It is hard to think the Chinese authorities will aim for a GDP growth well above 7 percent. I suspect these China-related shares will be bought back for a while but they are unlikely to be leading the market,” said Sumitomo Life’s Ono. (Reporting by Hideyuki Sano; Editing by Eric Meijer)