Japan bank shares plunge with JGB yields amid SVB risks

By Kevin Buckland TOKYO, March 14 (Reuters) - Japanese banking shares tumbled to the lowest in nearly three months on Tuesday, dragging the Nikkei share average down more 2% as investors rushed for the exits amid worries about contagion from the collapse of Silicon Valley Bank. Yields on Japanese government bonds plunged to multi-month lows, tracking U.S. peers amid a global flight to quality that has flattened yield curves, putting additional weight on lenders by cutting the outlook for profits. Expectations for further Federal Reserve rate increases have also been slashed , along with the chances for a hawkish shift at the Bank of Japan, which had been the driver for a nearly 28% surge in the Tokyo Stock Exchange's banking index since late December that took it to the highest since 2015 last week. "The pressure to unwind positions is extremely big here," said Yunosuke Ikeda, chief equity strategist at Nomura Securities, which became the first major forecaster to predict the Fed would cut rates by a quarter point at its meeting next week, after previously calling for a half-point hike. "Hopes have been dashed for near-term BOJ policy normalisation," Ikeda said. The prospect of higher interest rates had been "the reason investors have been really excited about Japan bank stocks." The TSE banking index slumped as much as 7.5% in the first hour of trading, with regional banks under particular pressure but giants like Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group also sliding more than 7%. The steep declines came despite more reassurances from Japanese officials, with Finance Minister Shunichi Suzuki telling reporters on Tuesday he did not expect SVB's failure to have a big impact on Japan's economy or financial system. He declined to comment on its potential impact on BOJ policy. The Nikkei was 2.3% lower at 27,189.87 as of 0200 GMT, near the session low of 27,104.75, a level last seen on Feb. 22. The broader Topix , which is more influenced by swings in bank stocks than the tech-heavy Nikkei, sank 2.9% to 1,942.61, as was at one point down as much as 3.2% at 1,936.88, the lowest since Jan. 20. The yen's surge overnight to a one-month high against the dollar put pressure on exporters by cutting the value of their overseas revenues. Automaker shares tumbled, with Nissan , Mitsubishi Motors and Mazda all slumping around 6%. (Reporting by Kevin Buckland; Editing by Bradley Perrett)