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Japan stocks drop as lackluster production data dents sentiment

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Japanese stocks lost nearly 1% on Thursday, after data showed that monthly industrial production fell the most in two years and the yen hit a 24-year low overnight, stoking fears of an economic slowdown.

The Nikkei share average lost 0.91% in early trading. The broader Topix index was down 0.65%.

The Japanese yen was flat in morning trading at 136.56 to the U.S. dollar after hitting a new 24-year low overnight, breaching the key 137 mark.

Earlier in the day, Japan’s Ministry of Economy, Trade and Industry (METI) released data that showed industrial production fell 7.2% in May, the second straight monthly decline and the biggest monthly drop in two years.

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“May’s weaker-than-expected industrial production cast a shadow,” said Kazuo Kamiya, a strategist at Nomura Securities. “The market is in a position where negative factors are likely to be reflected.”

Automakers and other exporters have been hit by shortages of parts and complications from the COVID-19 lockdowns in China.

Toyota Motor Corp, the world’s largest car manufacturer, was down 0.8% after the company missed its May production target, which had already been revised downward.

The S&P 500 was down slightly overnight and is on track for its worst first-half performance in more than 50 years amid fears that central banks’ measures to combat soaring inflation could lead to a recession.

Of the Nikkei’s 225 components, 146 made losses, 11 were flat, and 68 made gains.

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Energy was the worst-performing sector, down 2.77%. Oil company Inpex Corp lost 3.28% as Brent crude futures dropped 0.42% to $115.77 a barrel, on track for a second consecutive session of losses.

Financial services company Japan Exchange Group was the worst performer in early trading, losing 5.7%. Semiconductor manufacturer Screen Holdings Co Ltd was next at 5.37%.

Construction company Kajima Corp was the best performer, up 2.74%. Internet services company DeNA gained 1.71% on the announcement of a buyback of 8.44% of its shares.

Fujifilm Holdings was the best early performer after announcing an investment of $1.6 billion to expand its cell culture manufacturing capacity, although the stock pared gains to trade up 0.91%.

(Reporting by Sam Byford and Tokyo markets team; Editing by Sherry Jacob-Phillips)

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