Financials lead Japanese shares lower as expectations of early rate hike fade

By Junko Fujita

TOKYO, Sept 3 (Reuters) - Japanese shares fell on Wednesday, led by declines in financial stocks after comments from a top Bank of Japan official lowered expectations for an early interest rate hike.

The Nikkei .N225 slipped 0.2% to 42,220.77 by 0216 GMT, while the broader Topix .TOPX was down 0.4% at 3,069.25.

BOJ Deputy Governor Ryozo Himino said on Tuesday that the central bank should keep raising interest rates but warned that global economic uncertainty remained high, suggesting it was in no rush to push up still-low borrowing costs.

"Market expectations for a BOJ interest rate hike toned down after the remarks from Himino, who was still careful about the impact of (U.S. President Donald Trump's) tariffs," said Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Intelligence Laboratory.

"Obviously, the momentum of buying by foreign investors, who have supported the rally in domestic stocks, has faded."

Optimism about the domestic corporate outlook and easing concerns about the impact of Trump's tariffs sent both the Nikkei and Topix to record highs last month.

A trade deal reached in July between the U.S. and Japan opened the scope for the BOJ to raise rates again this year.

On Wednesday, the bank index .IBNKS.T fell 2.19% to become the worst performer among the Tokyo Stock Exchange's (TSE) 33 industry sub-indexes.

Mitsubishi UFJ Financial Group 8306.T lost 1.91%. Sumitomo Mitsui Financial Group 8316.T and Mizuho Financial Group 8411.T both dropped 2.2%.

The brokerage sector .ISECU.T fell 1.35%.

Investors globally awaited the monthly U.S. payrolls report, due on Friday, to see if weak U.S. job growth continued for a fourth month in August.

Of the more than 1,600 stocks trading on the TSE's prime section, 61% rose, 34% fell and 3% traded flat.