Tokyo - Tokyo shares fell on Friday morning as Deutsche Bank's woes dented financial firms while exporters were hit by a stronger yen.
The weak start followed a slump on Wall Street where Deutsche Bank sank nearly seven percent, after news that a number of hedge funds had pulled money out of the German giant owing to worries over its financial strength.
"Anxiety is spreading," Juichi Wako, a senior strategist at Nomura Holdings, told Bloomberg News.
"The bad environment will enclose the whole market, and investors will feel they can't buy Japanese shares either."
The benchmark Nikkei 225 index dropped 258.10 points, to 16 435.61 by the break, while the Topix index of all first section shares was down 20.30 points, at 1 322.95.
Among major Japanese banks, Mitsubishi UFJ Financial Group fell 1.84% to ¥506.5, while rival Mizuho Financial Group dropped 1.45% to 169.9. Sumitomo Mitsui Financial Group sank 0.87% to 3 402.
The dollar slipped to ¥100.95 against 101.04 in New York, denting demand for exporters.
Sony was down 1.89% at ¥3 319 while Toyota dropped 2.08% to ¥5 775.
Sentiment was also hit by another barrage of weak Japanese data, including a 4.6% fall in household spending in August, far below market expectations for a drop of around two percent.
Consumer prices also fell 0.5% year-on-year, putting the Bank of Japan's two percent inflation target further out of reach.
"While the labour market remains tight, the continued decline in underlying inflation should ring the alarm bells at the Bank of Japan," said Marcel Thieliant at research house Capital Economics.
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