Japan's Nikkei slumps as tariff concerns, yen strength unsettle market

By Brigid Riley

TOKYO, March 4 (Reuters) - Japan's Nikkei fell on Tuesday, as markets were jittery about a trade war ahead of U.S. tariffs on Canada and Mexico, while a stronger yen also added to investors' concerns.

The Nikkei .N225 was down 1.8% at 37,096.51 by the midday break, after briefly dropping to its lowest intraday level since September 18. The broader Topix .TOPX was down 1.2% at 2,696.99.

The yen rose to near its strongest since early December against the U.S. dollar JPY=EBS after U.S. President Donald Trump said on Monday that he told leaders of Japan and China they cannot continue to reduce the value of their currencies as doing so would be unfair to the United States.

The stronger yen hit exporter shares such as Toyota Motor 7203.T, which tumbled 2.2%.

Japanese officials have been more concerned about yen weakness and will likely continue to be relatively hawkish, going against market hopes, said Naka Matsuzawa, chief macro strategist at Nomura Securities.

A continued underperformance of technology shares also weighed on the Nikkei, with chip-testing equipment maker Advantest 6857.T down 6.2%, while investors sized up the impact of tariff policies amid U.S. growth fears.

"It's kind of similar to what happened last summer to a lesser degree," when the Nikkei suffered steep losses on a mix of factors including a sharply stronger yen and U.S. recession worries, Matsuzawa said.

Wall Street's main stock indexes closed sharply lower on Monday after Trump announced the start of 25% tariffs on Canada and Mexico from Tuesday, as well as an additional 10% on Chinese imports. .N

Among Nikkei heavyweights, Uniqlo parent firm Fast Retailing 9983.T stumbled 2.6%, AI-focused startup investor SoftBank Group 9984.T slid 5.2%, while Seven & i Holdings 3382.T shed 10.2%.

The Nikkei volatility index .JNIV briefly jumped to 31.6 points, a level last seen in early November following the U.S. presidential election.