LONDON -- Japanese shares led markets lower Wednesday after a minister warned over an excessive fall in the value of the yen. Elsewhere, concern over U.S. budget talks caused many indexes to drop further from multiyear highs.
The Japanese currency has been sold off sharply in recent weeks, and that's helped the country's main stock market clamber to 32-month highs -- a lower currency makes Japanese goods potentially more competitive in the international marketplace, thereby helping the national economy to grow.
However, while making exports cheaper, a weaker currency can stoke inflation by making imports more expensive -- that's important for a country like Japan that is dependent on foreign resources such as oil.
Kyodo News Agency reported that economy minister Akira Amar voiced exactly those concerns and that prompted a share reverse in the Nikkei 225 index, which closed 2.6 percent lower at 10,600.44 alongside a recovery in the yen -- by late morning London time, the dollar was down 0.6 percent on the day at 88.09 yen.
Despite Wednesday's move, there are doubts that the impact will be anything more than short-lived. The yen has been falling over the past couple of months in anticipation of economy-boosting measures that will dilute the value of the yen.
"While the intervention has resulted in a minor correction, it has not been dramatic and we think it does not alter the trend towards further yen depreciation," said Neil MacKinnon, global macro strategist at VTB Capital.
Elsewhere, markets were subdued for the second-day running. Over the first couple of weeks of 2013, many stock indexes hit multiyear highs on relief that U.S. politicians cobbled together a last-minute budget deal to avoid the so-called `fiscal cliff' of automatic tax rises and spending cuts that would have come into effect on Jan. 1.
In Europe, Britain's FTSE 100 was 0.6 percent lower at 6,083 while Germany's DAX fell 0.4 percent at 7,651. The CAC-40 in France was 0.4 percent lower at 3,684.
Wall Street also appeared headed for losses, with Dow futures and the broader S&P 500 futures down 0.3 percent.
Traders are increasingly nervous about a fight brewing in Washington over raising the U.S. debt ceiling so that the government can keep borrowing money to pay its bills. The U.S. Treasury says it will run out of money to pay all the government's obligations sometime in February or March if Congress doesn't raise the current $16.4 trillion limit on borrowing.
Republican lawmakers say they will demand major spending cuts in exchange for any agreement to raise the debt limit. But President Barack Obama has said he won't negotiate on the debt limit.
"The post-fiscal cliff rally has been looking weaker and weaker of late, as the bulls struggle to lift markets beyond recent highs," said Chris Beauchamp, market analyst at IG.
Later, investors will be focusing on the next round of U.S. quarterly corporate earnings, with Goldman Sachs and JP Morgan Chase likely to take center stage.
"Combine that with a raft of U.S. data, including the Fed's Beige Book survey, and there may be enough to tempt investors back to the market once more," said IG's Beauchamp.
The day's lukewarm trading started in Asia. Hong Kong's Hang Seng fell 0.1 percent to 23,356.99. South Korea's Kospi fell 0.3 percent to 1,977.45.
Oil prices were flat with the benchmark New York rate up 4 cents at $93.32 a barrel, while the euro was unchanged at $1.3306.