Japan's Nikkei falls as US credit downgrade spurs asset jitters, lifts yen

TOKYO, May 19 (Reuters) - Japan's Nikkei share average dropped on Monday after Moody's downgrade of the U.S. government credit rating raised concerns about a potential flight from U.S. assets, leading to a stronger yen.

The Nikkei index was down 0.36% at 37,617.63 by the midday break, while the broader Topix .TOPX erased early losses to edge 0.14% higher to 2,744.16.

"The market is cautious about the impact of the Moody's downgrade of the United States. They are worried this could drive sell-off of U.S. assets," said Shuutarou Yasuda, a market analyst at Tokai Tokyo Intelligence Laboratory.

"The timing of the downgrade was bad. It came at a time domestic stock markets recouped losses from (U.S. President Donald) Trump's tariff announcement," he said.

Moody's downgraded the U.S. sovereign credit rating on Friday due to concerns about the nation's growing, $36 trillion debt pile, in a move that could complicate Trump's efforts to cut taxes and send ripples through global markets.

U.S. assets saw a global sell-off last month following Trump's decision on April 2 to slap sweeping tariffs on trading partners, including key strategic allies such as Japan.

"If U.S. dollars are sold, that would push the yen higher, which is bad for Japanese exporters," said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities.

The yen JPY=EBS strengthened 0.3% to 145.24 in Asian trade on Monday.

A stronger yen typically weighs on exporter shares by reducing the value of overseas earnings when converted back into Japanese currency.

Shares of Fast Retailing 9983.T, the owner of Uniqlo brand, slipped 1.06% - the biggest drag in the Nikkei index.

Chip-related Advantest 6857.T and Tokyo Electron 8035.T lost 1.68% and 1.21%, respectively.

Drugmaker Daiichi Sankyo 4568.T jumped 7.38%, topping the Nikkei's percentage gainers and providing the index's biggest boost.