Japanese Stocks Fall as Fears Mount That Fed Will Hike Rates : Markets: Tokyo investors concerned that the growth in U.S. employment will lead to action to check inflation.

Japanese stocks fell in early trading today after an upbeat U.S. employment report released Friday rekindled concern that the Federal Reserve will raise short-term rates in the U.S. to keep inflation in check, traders said.

In the first fifteen minutes of trading, the Tokyo Stock Exchange’s benchmark Nikkei 225 average was down 257.36 points, or 1.34% at 19,019.80. The broader Topix index of all shares on the first section of the Tokyo Stock Exchange dropped 16.42 points, or 1.05%, to 1,554.76.

Nikkei 225 stock index futures for June delivery fell 400 points to 19,005 in Singapore. Futures in Osaka were yet to trade due to an imbalance of sell orders.

The U.S. Labor Department said Friday that last month the U.S. created 456,000 new jobs, the biggest gain in more than six years. The report sent the yield on the benchmark 30-year Treasury bond to its highest levels in 14 months, up from less than 7.10% to as high as 7.27%.

“These figures are proof that the U.S. economy is well on the road to recovery,” said Tatsuya Oguchi, general manager of futures and options at James Capel Securities.

Many U.S. analysts were watching the performance of the Tokyo market today for clues to the direction of the U.S. market when it opens this morning. Other Asian markets, including Hong Kong, Australia, New Zealand, and Taiwan are closed today for holiday observances.

In the United States, the New York Stock Exchange index last week posted a loss of 139 points, continuing a sharp selloff of more than 300 points that began in earnest in early February. The dive has been attributed to a response to the Fed’s moves to raise interest rates for the first time in five years.

The Federal Reserve has raised rates twice since Feb. 4, most recently to 3.5% from 3.25% on March 22. Following the Feb. 4 increase, Japanese stocks fell 287.03 points, or 1.4%, while share prices slid 291.43 points, or 1.44% after the Federal Open Market Committee voted to raise short-term rates.

Oguchi predicted trading volume would be thin today because Japanese institutional and overseas investors will await reaction from investors abroad before actively entering the market.

On Friday, activity on the first section of the Tokyo Stock Exchange was 230 million shares today, down from a six-month average of 337 million shares a day.

However, gains in stock prices at the end of last week and a rise in Japan’s smaller indexes indicates that Japanese stocks could weather a rise in U.S. rates without much damage, said Paul Migliorato, a senior salesman at Jardine Fleming Securities.

“I think the weakness in the bond market in the states is certainly going to unnerve Japan,” Migliorato said. “But there have been some areas of strength, and I think Japan will be helped by the weekend and by the fact that American (inflationary) problems aren’t necessarily Japan’s problems.”

Compared to a 3.67% drop in the Dow Jones industrial average, and a 5.10% fall in the Nasdaq index, Japan’s over-the-counter market reached a new high for the year last week, rising 1.59%, Migliorato said. Since March 17, the Dow has declined 6%, or 229.18 points.

“Inflationary numbers in the U.S. don’t necessarily mean inflationary things for Japan,” Migliorato said.

Japanese bond prices also were down at the start of Tokyo trading as traders reacted to the fall in U.S. bonds on Friday.

Bond futures for June delivery, currently the active futures contract, were down 0.25 yen at 111.85 yen. The yield on the benchmark No. 157 10-year government bond was 3.925%, up 0.06%.

“With U.S. yields at 7.27%, we can’t say there won’t be an effect on Japanese bonds,” said Mikinao Matsushita, a fund manager at BOT Asset Management, a unit of the Bank of Tokyo.

“The influence of the U.S. bond price fall, however, will be limited,” Matsushita said. “Actions by the Bank of Japan and movements in the currency market could divert attention away from the U.S.”

U.S. Treasury bonds opened higher in Tokyo today and the U.S. dollar was stronger against the yen, said Masashi Takiya, head of the customer desk at Industrial Bank of Japan.

In New York trading Friday, the dollar soared against most major currencies as the yield on U.S. bonds climbed following a government report showing the biggest gain in jobs since 1987.

The dollar will change hands between 103.30 to 104.20 yen during Tokyo trading hours, as it moves into the 103-106 yen range in the coming months, Takiya said.