The Nikkei average lost 1.63% to 27,821.76, hitting its lowest level since Oct. 7 and erasing earlier gains fuelled by hopes that Omicron’s impact might not be as severe as feared. It has lost 5.7% in the past three sessions.
The broader Topix lost 1.03% to a three-month low of 1,928.35, slipping further below its closely-watched 200-day moving average.
Both indexes erased their hefty, earlier gains after the Financial Times reported that the head of drugmaker Moderna said COVID-19 vaccines were unlikely to be as effective against the Omicron as they had been previously.
Vaccine resistance could lead to more sickness and hospitalisations and prolong the pandemic.
Some fund managers also pointed out the market is vulnerable because inflation fears are prompting central banks around the world to wind down their stimulus.
“The report about the vaccine was just a trigger and it is a superficial reason. The real problem is the withdrawal of excess liquidity. The party is over,” said Yasuo Sakuma, chief investment officer at Libra Investments.
Car makers were among the worst hit despite signs their chip shortage woes are easing, as the yen strengthened on safe-haven buying.
Nissan Motor lost 5.2% while Mitsubishi Motors dropped 4.4% and Toyota fell 0.6%.
Cyclials such as steelmakers also suffered, with the Topix steelmaker index losing 2.4% to be the worst performing sector, followed by a 1.9% fall in shippers .
The market was also saddled by net selling, estimated to be around 200 billion yen, from passive accounts that track MSCI as 15 Japanese stocks will be eliminated from the index while only two will be added.
Meanwhile, some battered travel-related stocks were resilient. The TSE Land Transport Index, mainly made up of train operators, rose 0.5%, with Keio up 2.4% and East Japan Railway adding 1.9%.
