TOKYO -- Japan's benchmark stock index closed down 5% Friday as investors shrugged off an interest rate cut by the central bank and instead unloaded shares for quick profits ahead of a long weekend.
Although losses accelerated after the Bank of Japan lowered its key interest rate from 0.5% to 0.3% — less than the quarter-point cut expected — market reaction was muted, said Harushige Kobayashi, equity strategies at Maruwa Securities.
Nervousness about the days ahead was what prompted investors to sell, he said. Tokyo markets will be closed Monday for a national holiday.
"Investors have no idea what could happen over the next three days," he said. "And stocks gained so much yesterday that some pullback was inevitable."
The Nikkei 225 index lost 452.78 points to close at 8,576.98 points after soaring 10% Thursday.
Yumi Nishimura, market analyst at Daiwa Securities SMBC said the Bank of Japan's policy move fell short of the widely expected cut to 0.25%, but added that "the market also welcomed the move as a step to stay in line with the rest of the world."
The central bank warned that "adjustments in the world economy stemming from financial crises in the United States and Europe have further increased in severity."
Exporters including autos and technology issues were among decliners Friday as the yen gained against the dollar.
A strong yen hurts exporters by eroding their dollar-denominated overseas earnings when converted back to the Japanese currency. The dollar bought 96.8 yen at late afternoon in Tokyo, down more than 1.9 yen from late Thursday in New York.
Honda Motor Co. fell 13%, and Mazda Motor Corp. declined 13.8%. Electronics maker Pioneer Corp. dropped 15.2%, and Nikon Corp. lost 18.1%.
Mizuho Financial Group Inc. lost more than 5% after the Japanese megabank said Friday it slashed its profit forecasts. It now expects 250 billion yen ($2.6 billion) in group net profit for the fiscal year, almost half of its previous forecast of 560 billion yen ($5.7 billion).
The broader Topix index of all first section issues closed down 3.6% to 867.12 points.
Other Asian markets were mixed Friday.
South Korea's market extended the previous session's 12% rally with the Korea Composite Stock Price Index up 2.8% at 1,113.29. Australia's key index climbed out of negative territory to close 0.4% higher.
Hong Kong's Hang Seng was down 1.5% at 14116.75 after vaulting 12.8% Thursday but smaller Asian markets such as the Philippines, Taiwan and Thailand posted gains of 3% or more while Jakarta's main index surged 7.1%.
Despite the global financial crisis, a faltering domestic economy and extreme market volatility, the Bank of Japan had until now left monetary policy untouched, reiterating its long-held stance that the world's second-largest economy faced both upside and downside risks. The bechmark rate had stood at 0.5% since February 2007.