Japan's Nikkei share average hit a four-week trough on Friday, as exporters slumped amid a strengthening yen on rising bets for a near-term end to the Bank of Japan's (BOJ) stimulus measures.
The Nikkei lost 1.68% to 32,305.33 as of the midday recess, after hitting its lowest since Nov. 10. The benchmark is set for a 3.37% weekly decline, its worst week since mid-September.
The broader Topix sank 1.39%, setting up a 2.33% slide this week.
The Tokyo Stock Exchange's transport equipment subindex was the worst performer by far among the 33 industry groups, dropping 3.81%.
Several Toyota Group companies were among the Nikkei's biggest laggards, led by parts maker JTEKT dropping 5.63%. Toyota's logistics arm Toyota Tsusho slid 5.40%, Subaru lost 4.60%, Denso slumped 45.1% and Toyota Motor fell 4.35%.
A stronger yen erodes the value of overseas revenues when they are repatriated.
The Japanese currency surged more than 2% overnight and hit a four-month high at 141.60 per dollar after BOJ Governor Kazuo Ueda said the central bank had several options on which interest rates to target once it pulls short-term borrowing costs out of negative territory, in the clearest sign yet of an imminent move away from stimulus.
Nomura Securities strategist Kazuo Kamitani said while it couldn't be ruled out that Ueda intended to strengthen the yen, he likely would have been surprised with the scale of the move.
"Clearly there are a lot of nerves in the market about a normalization of policy...Even if we see yen appreciation continue, the effect on corporate earnings will be pretty much nil," limiting Nikkei declines, he said.
However, where the yen goes from here is "extremely hard to predict right now," and a return to a weaker yen might see the Nikkei mark a fresh 2023 peak before year-end, Kamitani added.
Of the 225 Nikkei components, 191 dropped, 33 rose and one was flat.
Bank shares outperformed, with expectations for an end of ultra-low bond yields boosting the outlook for returns on lending and investment. The TSE's banking index gained 0.67%. (Reporting by Kevin Buckland; Editing by Rashmi Aich)