Japanese shares slip on caution over US economic outlook, stronger yen

TOKYO, June 5 (Reuters) - Japanese shares slipped on Thursday as weak U.S. economic data stoked caution toward the outlook of the world's largest economy, while a stronger yen hurt automakers.

At 0134 GMT, the Nikkei .N225 was down 0.1% at 37,704.91, having trimmed most of a decline of 0.6% earlier in the session.

The broader Topix .TOPX was down 0.64% at 2,627.17.

Overnight, U.S. data showed the smallest gain in private payrolls since March 2023 while the service sector contracted for the first time in about a year.

"The market had not expected to see the weak data out of the U.S., so now investors have become cautious about Friday's employment report," said Shuutarou Yasuda, a market analyst at Tokai Tokyo Intelligence Laboratory.

"But the weak economic data means the Federal Reserve may lower interest rates, which is positive for equities. So investors do not have to switch to risk-off mode," Yasuda said.

The U.S. dollar weakened across the board overnight, sending the yen JPY=EBS as high as 142.6. The yen was last down 0.1% at 142.89.

A stronger Japanese currency tends to hurt shares of exporters, as it decreases the value of overseas profit in yen terms when repatriated to Japan.

Automakers fell, with Toyota Motor 7203.T and Honda Motor 7267.T slipping 1.87% and 1.44%, respectively.

Overall, automakers and auto parts makers .ITEQP.T fell 3.8%.

Bank shares fell as U.S. Treasury yields declined overnight, with Mitsubishi UFJ Financial Group 8306.T and Sumitomo Mitsui Financial Group 8316.T slipping 1.3% and 1.4%.

Chip-related heavyweights rose to track overnight gains in the technology-heavy Nasdaq Composite.

Advantest 6857.T surged 5% and Tokyo Electron 8035.T rose 3.3%, providing the biggest support to the Nikkei.

Of more than 1,600 stocks trading on the Tokyo Stock Exchange's prime market, 45% rose, 50% fell and 3% were flat.