Japanese stocks fell to their lowest level in about four weeks on Wednesday, affected by a decline in bank shares after comments from a senior official at the Bank of Japan lowered expectations for an early interest rate hike.

The Nikkei index dropped 0.88% to close at 41,938.89 points, while the broader Topix index fell 1.07% to 3,048.89, marking their lowest closing levels since August 8.

Interest Rate Hikes

Bank of Japan Deputy Governor Ryozo Himino said on Tuesday that the central bank should continue raising interest rates but warned that the uncertainty surrounding the global economy remains high, indicating the bank is in no rush to increase borrowing costs that are still low.

Seiichi Suzuki, chief equity analyst at Tokai Tokyo Intelligence Laboratory, said, “Market expectations for a rate hike by the Bank of Japan declined after Himino’s remarks, who remained cautious about the impact of U.S. tariffs.”

He added, “It is clear that the buying momentum from foreign investors, who supported the rise in local stocks, has faded.”

Optimism about local companies’ outlooks and easing concerns over U.S. President Donald Trump’s tariff impact had pushed the Nikkei and Topix indices to record levels last month.

The trade agreement reached in July between Washington and Tokyo opened the door for the Bank of Japan to raise interest rates again this year.

Banking Index

The banking index fell 3.19% on Wednesday, becoming the worst-performing among the 33 sub-indices on the Tokyo Stock Exchange.

Mitsubishi UFJ Financial Group shares lost 3.15%.

Shares of Sumitomo Mitsui Financial Group and Mizuho Financial Group both dropped more than 3%.

The insurance sector declined 2.73%.

Global investors are awaiting the U.S. monthly jobs report, due Friday, to see if the weak U.S. job growth continued for the fourth consecutive month in August.

Tokyo Electron, a semiconductor equipment maker, shares fell 1.92%, while SoftBank Group, which invests in technology, dropped 5.27%.

Fast Retailing, owner of the Uniqlo clothing brand, rose 0.5%, providing the biggest support to the Nikkei index.

(Reuters)