TOKYO, Aug. 8 (Xinhua) -- The Nikkei stock index tumbled 2.98 percent to its lowest close in two months, as investor sentiment was dashed by news of potential air strikes by the United States on Iraq and as the situation in Ukraine escalates.
The Nikkei 225 index dropped 454.00 points to close at 14,778. 37, marking its lowest closing level since late May, while the broader Topix index of all first-section shares lost 2.37 percent, or 29.86 points, to finish at 1,228.26.
Local traders here said that investors were back to a risk- averse mood following U.S. President Barack Obama announcing he has authorized targeted air strikes against Islamic militants in Iraq at the request of the Iraqi government, as the U.S. military sets about an airborne operation to provide relief to thousands of minority Iraqis driven to a refuge atop a mountain.
The U.S. president said, however, that ground troops would not be involved in this operation.
Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd., said that the move by the U.S. may lead to the disruption of key oil supply chains and thus weigh on the global economy.
"Obama's action shows the U.S. inevitably needs to be involved in the Middle East. That's causing a risk-off mode and may weigh on the global economy because it can disrupt supply and demand of oil," Sera said.
Other strategists said the geopolitical situation in Ukraine was also weighing heavily on the market mood as Russian troops intensified their presence on its border with Ukraine and Moscow unrolled an extension of its original import bans to countries that have sanctioned it, as the crisis becomes the worst between Russia and the United States and its allies since the Cold War.
The U.S. dollar dropped to as low as 101.58 yen in Tokyo Friday, compared with 102.09 yen in New York logged late on Thursday. A strong yen is bad for exporters as they see overseas profit yields diminish when repatriated on unfavorable exchange rate and their competitiveness in global markets is also compromised.
Automakers subsequently lost ground, with Mazda Motor reversing 2.9 percent to 2,378 yen and Honda Motor skidding down 2.7 percent to close at 3,410 yen.
Other issues heavily reliant on overseas markets also came under pressure, with construction machinery maker Komatsu Ltd. falling 2.3 percent to 2,245 yen, while Tokyo Electron dropped 5.2 percent to 6,318 yen.
Nikon tumbled 9.4 percent to 1,435 yen, after the camera maker announced a day earlier its consolidated net profit for the current year through next March will likely fall more than 18 percent on year to 38 billion yen.
Mitsubishi Materials was another notable decliner on the last trading day of the week, falling 6.8 percent to 342 yen, after announcing its consolidated net profit in Q2 tumbled more than 46 percent from a year before to 9.51 billion yen.
Heavily weighted Nikkei component SoftBank lost 3.4 percent to 6,801 yen, after its founder and chief Masayoshi Son was scheduled to hold a news conference later in the day, to explain why talks between SoftBank's Sprint to acquire T-Mobile in the United States were shelved due to regulatory issues.
After the closing bell Friday, SoftBank announced its net profit had plummeted 70 percent in Q2 from the same period a year earlier.
Trading volume on Friday increased to 2.75 billion shares on the Tokyo Exchange's First Section, up from Thursday's volume of 2. 21 billion shares, with declining issues outnumbering advancing ones by 1,656 to 131. (1 U.S. dollar equals 101.78 Japanese yen)