TOKYO (Kyodo) -- The Nikkei index ended sharply lower Friday, logging its biggest point drop since June 2016, as a spike in the yields of U.S. and Japanese long-term bonds triggered concern about market stability and possible changes to monetary easing.
The 225-issue Nikkei Stock Average ended down 1,202.26 points, or 3.99 percent, from Thursday at 28,966.01, falling below the 29,000 line for the first time since Feb. 5. The broader Topix index of all First Section issues on the Tokyo Stock Exchange finished 61.74 points, or 3.21 percent, lower at 1,864.49.
The U.S. dollar moved around the 106 yen line, caught in a tug of war between buying on rising U.S. interest rates and selling over market instability concerns triggered by sharp falls in Tokyo stocks, dealers said.
At 5 p.m., the dollar fetched 106.08-09 yen compared with 106.19-29 yen in New York and 106.00-02 yen in Tokyo at 5 p.m. Thursday.
The euro was quoted at $1.2134-2135 and 128.72-76 yen against $1.2170-2180 and 129.22-32 yen in New York and $1.2186-2188 and 129.17-21 yen in Tokyo late Thursday afternoon.
Tracking U.S. long-term interest rates hitting a one-year high overnight, the yield on the benchmark 10-year Japanese government bond briefly rose to 0.175 percent before finishing at 0.160 percent, up 0.020 percentage point from Thursday's close.
The bond yield closed at its highest level since Jan. 29, 2016, when the Bank of Japan decided to adopt a negative interest rate.
Tokyo shares lost ground throughout the day, with the Nikkei logging its largest fall since June 24, 2016, when it tumbled 1,286.33 points as Britain voted to exit from the European Union in a historic referendum.
"Both U.S. and Japanese interest rates rose too rapidly and companies that have been overvalued such as those related to high-tech, digitalization and stay-at-home demands met selling," said Toshikazu Horiuchi, equity strategist at IwaiCosmo Securities Co.
Although U.S. Federal Reserve Chairman Jerome Powell has signaled in congressional testimony that the central bank will keep its accommodative policy in place for some time, investors remained cautious, brokers said.
"Since share prices had risen on the back of massive monetary easing and fiscal spending, (the sharp fall in Tokyo stocks) cooled off excessive expectations," said Yutaka Miura, senior technical analyst at Mizuho Securities Co., adding stocks in other countries similarly declined.
Miura said the Nikkei may remain volatile until the Federal Reserve's two-day policy meeting through March 17, fluctuating by up to 600 points between positive and negative territory even within a day. The Bank of Japan will also hold a two-day Policy Board meeting from March 18.
Horiuchi said the market is expected to regain its bullish tone if traders perceive the rise in interest rates as reflecting global economic recovery, because if so, business improvement would follow.
"With more people getting vaccinated and infection cases decreasing, the market is expected to lean toward optimism," Horiuchi said.
The Nikkei extended losses toward the closing of the day's session as investors locked in gains before the end of the week as well as the month, Horiuchi said.
On the First Section, declining issues outnumbered advancers 1,985 to 172, while 37 ended unchanged. Decliners were led by electric appliance, pulp and paper, and real estate issues.
Among high-tech shares, semiconductor-related companies were notably lower.
Disco sank 1,450 yen, or 4.2 percent, to 33,400 yen, Advantest plunged 710 yen, or 7.5 percent, to 8,750 yen and Screen Holdings skidded 580 yen, or 6.5 percent, to 8,300 yen.
Real estate issues were sold on fears that rising interest rates would increase their interest-bearing liabilities and hurt earnings.
Tokyo Tatemono dropped 78 yen, or 4.9 percent, to 1,511 yen, Mitsubishi Estate shed 79.00 yen, or 4.1 percent, to 1,838.00 yen, and Sumitomo Realty & Development declined 184 yen, or 4.8 percent, to 3,670 yen.
Trading volume on the main section rose to 1,688.76 million shares from Thursday's 1,460.95 million shares.