July 24, 2017 / 3:02 AM / a year ago

Nikkei drops to more than 2-week lows on weak U.S. stocks, strong yen

* Topix on track to fall below 25-day moving average at market close for 1st time in 3 months

* BOJ cuts amount of 5-10 year JGB purchase

By Ayai Tomisawa

TOKYO, July 24 (Reuters) - Japanese stocks dropped to more than two-week lows on Monday morning after Wall Street retreated and a stronger yen dampened sentiment, while traders were also wary that the long-term rising trend in the broader Topix may run out of steam soon.

The Nikkei share average declined 0.9 percent to 19.932.30 in midmorning trade, after sliding to 19,901.88, the lowest level since July 7.

Traders said the market is also nervous about the broader Topix, which declined 0.9 percent, on track to fall below its 25-day moving average at the market close for the first time in three months.

“This is pretty negative and the market is a bit cautious. Although fundamentals are good and there are hopes for strong April-June earnings, we need to be careful about this technical trend,” said Hikaru Sato, a senior technical analyst at Daiwa Securities.

On Friday, Wall Street indexes ended flat to about 0.15 percent lower, pressured by disappointing earnings from General Electric and energy shares.

The dollar stayed on the defensive as the euro strengthened as markets wagered the European Central is on track to start winding back its asset purchase programme in the not-too-distant future.

“The market is already cautious against the fact that the BOJ lags behind other central banks in tapering stimulus,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

Earlier in the morning, the Bank Of Japan cut the amount of five-to 10-year government bonds it purchased at its regular operation. It bought 470 billion yen ($4.24 billion) of the maturities, down from 500 billion yen at its last operation the previous week.

Shigemi said investors will continue to carefully monitor the pace of the BOJ’s asset purchase which could trigger a rise in the yen.

Last week, the BOJ once again pushed back the timing for achieving its ambitious inflation target, reinforcing views that it will lag well behind other major central banks in scaling back its massive stimulus programme.

On Monday, 31 of Topix’s 33 subsectors were in negative territory.

Financial stocks were underperforming, with Mitsubishi UFJ Financial Group falling 1.4 percent and Mizuho Financial Group dropping 1.2 percent, while Dai-ichi Life Holdings declined 2.4 percent.

Exporters were sold as well, with Advantest Corp shedding 1.3 percent, Hitachi Ltd sliding 1.1 percent and Honda Motor Co falling 1.1 percent.

Bucking the trend, condiment maker Kagome Co rose 0.7 percent after the company raised its profit outlook for the year ending December. It now expects an operating profit of 12.5 billion yen, up from previously forecast 11.5 billion yen. (Editing by Shri Navaratnam)

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