The Nikkei closed 0.6% lower at 37,913.92, posting a 2.7% loss for the week.
The broader Topix finished down 0.7% at 2,618.32.
The markets have been on edge as recent opinion polls suggest voters could end the Liberal Democratic Party’s over decade-long dominance on Sunday, forcing the ruling party into power-sharing deals that may undermine the country’s leadership.
“That’s basically the scenario for ‘sell Japan’,” with investors considering various scenarios on how such an outcome could impact the fiscal and monetary policy outlook, said Naka Matsuzawa, chief macro strategist at Nomura Securities.
The losses were widespread as investors adjusted positions on Friday, the last day of trading before votes are counted on Oct. 27. Of the Nikkei’s 225 constituents, 176 declined, while only 48 advanced. One was untraded. All 33 industry sectors were in the red, led by the shipping sector’s 3.6% decline. Wei Li, a multi-asset quant solutions portfolio manager at BNP Paribas Asset Management, expects Japanese markets could react positively if the LDP-Komeito coalition secured a simple majority. Failing to do so, however, could heighten volatility.
“The extent of the market reaction would depend on how far below 233 seats they fall. Losing an outright majority could spark more severe turmoil,” he said.
Among major shares, chip-testing equipment maker Advantest tumbled 2.9% to weigh the most on the Nikkei.
Uniqlo parent firm Fast Retailing shed 0.7%, staffing agency Recruit Holdings lost 2.4% and video-game maker Konami Group dropped 2.8%.
The largest percentage losses in the Nikkei were Sumitomo Pharma down 6.3%, followed by shippers Kawasaki Kisen Kaisha losing 4.3% and Nippon Yusen KK down by 3.8%.
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