Nikkei falls in choppy trade after weak US data overshadows Fed hike

Japan's Nikkei share average fell in choppy trade on Thursday, after weak US inflation data overshadowed an interest hike by the Federal Reserve. Also souring sentiment was a Washington Post report that US President Donald Trump is being investigated by a special counsel for possible obstruction of justice.

By midmorning, the Nikkei was down 0.6 per cent at 19,762.71, after briefly flirting with positive territory earlier.

The US central bank raised interest rates to a range of 1.00 to 1.25 per cent as expected, and gave its first clear outline on its plan to reduce its $4.2-trillion bond portfolio. Fed policy makers also signalled they were likely to raise rates once more this year. But the rate hike was overshadowed by poor inflation and retail sales data.

“The market is relieved that the big event has passed. But the result left the market with lots of questions after weak U.S. economic data,” said Takuya Takahashi, a strategist at Daiwa Securities.

Consumer prices unexpectedly fell on month in May and the annual increase in core CPI slipped to 1.7 per cent, the smallest rise since May 2015, after advancing 1.9 per cent in April. Retail sales fell 0.3 per cent last month - the largest fall since January 2016 and way below economists' expectations for a 0.1 per cent gain.“It is difficult for investors to imagine that the US economy will recover from the first quarter and inflation will rise anytime soon,” Daiwa's Takahashi said.

Exporters were mostly weak after the dollar dropped to an eight-week low of 108.81 yen overnight before recovering to trade at 109.56 yen.

Toyota Motor Corp dropped 1.0 per cent, while Honda Motor Co shed 0.5 per cent. Shares of banks, which hunt for higher yielding products, also lost ground after US yields fell. Mitsubishi UFJ Financial Group and Mizuho Financial Group both declined 1.4 per cent.

Bucking the trend was Nintendo Co, soaring 3.5 per cent to 35,980, a level not seen since January 2009, extending its gains after it announced on Twitter the previous day that it would release Super Mario Odyssey for Switch on Oct. 27.

The broader Topix dropped 0.5 per cent to 1,583.42.