Tokyo: Tokyo shares fell in early trading Monday, after revived speculation about a possible US rate hike drove down stocks on Wall Street last week.
Investors turned cautious as questions arose over the sustainability of loose monetary policies offered by major central banks around the globe.
US Federal Reserve Bank of Boston President Eric Rosengren fuelled rate hike speculations Friday, when he said in a speech that higher rates were needed to prevent the economy from overheating.
Normally dovish FRB Governor Daniel Tarullo also signalled his openness to a 2016 rate hike in a television interview.
Their comments drove down Wall Street and European shares Friday, when market sentiment was already turning softer after comments by European Central Bank chief Mario Draghi.
On Thursday Draghi played down the prospect of an increase in asset purchases at a time when concern is mounting over the impact on the euro of Britain`s EU exit.
"Central banks are reluctant to add additional stimulus and that is causing a lot of concern," Niv Dagan, executive director at Peak Asset Management LLC, told Bloomberg Radio.
"We expect additional downside in the near term," he said. "You want to wait and see and remain cautious."
Starting a new trading week, the headline Nikkei 225 index at the Tokyo Stock Exchange dropped 1.07 percent or 181.49 points to 16,784.27 in mid-morning trading.
The broader Topix index of all first-section issues gave up 1.27 percent, or 17.07 points, to 1,326.79.
US stocks on Friday fell more than two percent, suffering their sharpest losses since the Brexit vote.
The dollar, meanwhile, stood at 102.59 yen, little changed from 102.69 in New York Friday.
Investors are awaiting a speech later Monday by Fed Governor Lael Brainard who will speak in Chicago in what will be the final appearance by a Fed official before next week`s policy meeting.
Rosengren`s remarks already boosted the probability of a rate increase by December to 60 percent, according to Bloomberg News.
"Markets have awoken to the fact that the days of further monetary stimulus may be numbered," Jason Wong, a currency strategist at Bank of New Zealand Ltd, said in an e-mail, according to Bloomberg News.
Markets are primed for "a good old-fashioned bout of risk aversion," he said.