Japanese shares at near four-week low, banks drag on fading BOJ early rate-hike bets

Japanese shares ended at a near four-week low on Wednesday, dragged by declines in bank stocks after comments from a top Bank of Japan official lowered expectations of an early interest rate hike.

The Nikkei NI225 fell 0.88% to close at 41,938.89, while the broader Topix TOPIX lost 1.07% to 3,048.89, their lowest close since August 8.

BOJ Deputy Governor Ryozo Himino said on Tuesday that the central bank should keep raising interest rates but warned that global economic uncertainty remained high, suggesting it was in no rush to push up still-low borrowing costs.

"Market expectations for a BOJ interest rate hike toned down after the remarks from Himino, who was still careful about the impact of (U.S. President Donald Trump's) tariffs," said Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Intelligence Laboratory.

"Obviously, the momentum of buying by foreign investors, who have supported the rally in domestic stocks, has faded."

Optimism about the domestic corporate outlook and easing concerns about the impact of Trump's tariffs sent both the Nikkei and Topix to record highs last month.

A trade deal reached in July between the U.S. and Japan opened the scope for the BOJ to raise rates again this year.

On Wednesday, the bank index TTOPIXB fell 3.19% to become the worst performer among the Tokyo Stock Exchange's (TSE) 33 industry sub-indexes.

Mitsubishi UFJ Financial Group 8306 lost 3.15% to become the biggest drag for the Topix.

Sumitomo Mitsui Financial Group 8316 and Mizuho Financial Group 8411 both slipped more than 3%.

The insurance sector IINS lost 2.73%.

Investors globally awaited the monthly U.S. payrolls report, due on Friday, to see if weak U.S. job growth continued for the fourth consecutive month in August.

Chip-making equipment maker Tokyo Electron 8035 lost 1.92%, while technology investor SoftBank Group 9984 dropped 5.27%.

Uniqlo-brand owner Fast Retailing 9983 gained 0.5% to give the biggest support to the Nikkei.