Japan's Nikkei average slipped to its lowest close in six weeks on Thursday as a short-covering boost after the Bank of Japan unveiled details of its asset-buying scheme failed to last.
The Nikkei briefly touched a session high of 9,413.68 shortly after the BOJ announcement, but investors were unwilling to chase prices higher at the peak of the earnings season and before a highly anticipated U.S. Federal Reserve meeting on November 2-3.
Japanese shares were also undermined by profit-taking as the yen edged up against the dollar after dipping to a two-week low near 82 yen the previous day.
"The overall impact on the stock market from the BOJ decisions was limited, but the news that the central bank is holding another meeting next week to talk about the purchase of ETFs and REITs was slightly positive," said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.
"Still, the focus is on how the Fed's meeting will impact currency moves and liquidity in the global market."
The benchmark Nikkei ended down 0.2% or 21.00 points at 9,366.03, its lowest close since September 14.
The broader Topix fell 0.4% to 814.33.
Traders said the Nikkei initially gained support after the central bank announced details of its asset-buying scheme unveiled on October 5.
The BOJ said it would buy 1.5 trln yen ($18.4 bln) in long-term government bonds and 2 trln yen in short-term government securities.
As widely expected, the BOJ decided to keep interest rates unchanged at a range of zero to 0.1% by a unanimous vote.
The central bank also said it would bring forward its next policy board meeting to November 4-5 from November 15-16 to make arrangements to start buying exchange-traded funds and J-REITs at an early date.
Still, property-related shares fell after the BOJ said it plans to spend 50 bln yen to buy REITs as part of the asset-buying scheme, disappointing some investors who had expected a larger purchase amount. Nippon Building Fund Inc fell 4.1% to 772,000 yen.
Global shares prices have been under pressure as investors shift away from risk assets on speculation that U.S. monetary easing will not be as pronounced as originally thought, and this has also hurt stocks, some market participants said.
"Investors are selling stocks to lighten their risks on speculation about the Fed. Global share prices have been under pressure and weighing on the Nikkei," said Kenichi Hirano, operating officer at Tachibana Securities.
JAPANESE EARNINGS
Shares of companies that have reported strong earnings results bucked the overall market fall.
Canon Inc rose 3.7% to 3,755 yen after the company raised its full-year operating profit forecast, while Fujitsu Ltd rose 3.3% to 560 yen after beating expectations with a doubling of quarterly operating profit.
"… Canon revised up its earnings forecast despite the strong yen — it even lowered its dollar/yen rate assumption to 80 yen. If more companies were to follow suit, that would likely provide a lift to the overall market going forward," said Mitsuo Shimizu, deputy general manager at Cosmo Securities.
Market participants have begun to scale back expectations of the Fed's intentions after The Wall Street Journal said on Wednesday it expected the Fed to commit to bond purchases worth only "a few hundred billion dollars" and stagger them over several months.
That compared with a Reuters survey this month that found markets expecting the Fed to announce a so-called QE2 stimulus of between $500 bln and $1.5 trln at its November 2-3 policy meeting.
The Nikkei's technical support is seen as solid at last week's intraday lows around 9,310-9,320 and the upper level of its daily Ichimoku cloud near 9,300.
"Sentiment towards the Nikkei could deteriorate greatly if it falls below 9,300. This could bring in a lot technical selling," Tachibana's Hirano said.
Trade picked up on the Tokyo exchange's first section, with 2 bln shares changing hands, its highest volume in two weeks. Declining stocks outnumbered advancers by more than 2 to 1.
