Japan's Nikkei falls on stronger yen as investors ponder BOJ rate hike

By Brigid Riley

TOKYO, Nov 29 (Reuters) - Japan's Nikkei share average fell on Friday as the yen strengthened on growing expectations for an interest rate hike following hotter-than-expected inflation data.

The Nikkei declined 0.4% to 38,193.01 by the midday break and was on track for a third consecutive week of losses.

The broader Topix was down 0.3% at 2,680.05.

The dollar/yen broke below 150 for the first time in over a month on growing bets that the Bank of Japan (BOJ) will hike rates again next month.

Investors now see a 60% chance the BOJ could hike rates again in December.

This weighed on exporter shares, with automaker Toyota Motor (TM) and tech and entertainment conglomerate Sony Group (SONY) down about 2% and 0.7%, respectively.

Meanwhile, banks and insurance shares were boosted by prospects of the rate hike, sending Dai-ichi Life Holdings (DCNSF) up 2.5% and Chiba Bank (CHBAF) adding 2.7% to become the biggest percentage gainer on the Nikkei.

Amid sluggish trade due to the U.S. Thanksgiving holiday on Thursday, investors also booked profit on domestic heavyweight stocks.

Chip-making equipment giant Tokyo Electron (TOELF) slipped 1.2%, while robot maker Fanuc (FANUF) was down 2.7%. Uniqlo parent firm Fast Retailing (FRCOF) edged down 0.2%. The Nikkei was poised to mark its worst monthly performance since April, as the market struggled amid geopolitical uncertainties and the U.S. presidential election. Investors have also been weighing concerns about U.S. President-elect Donald Trump's tariff pledges.

In coming months, "markets will likely need to become accustomed to higher (yen) interest rates and U.S. trade tariffs," said Neil Newman, head of strategy at Astris Advisory. The median forecast in a Reuters poll for the Nikkei saw tepid growth by mid-2025 as the market navigates near-term uncertainties, before edging up to new highs.

The Nikkei will likely continue trading in a range next week, with more potential comments from Trump among items in focus next week, said Kazuo Kamitani, an equities strategist at Nomura Securities. (Reporting by Brigid Riley; Editing by Varun H K)