By Hideyuki Sano
TOKYO, Aug 28 (Reuters) - Japanese shares fell on Friday by their most in almost a month on news Prime Minister Shinzo Abe will resign, bringing an abrupt end to his stable government and policy mix of aggressive monetary and fiscal stimulus dubbed Abenomics.
The Nikkei share average .N225 declined 2.65% at one point before closing 1.41% lower at 22,882.65.
"The Nikkei will likely head to around 21,000, a level where its price-to-book ratio will be 1.0," said Takatoshi Itoshima, a strategist at Pictet Asset Management.
"Japanese stocks tend to do well under a long, stable government and that was especially the case for Abe. Foreign investors may also worry what will happen to the relationship between the government and the Bank of Japan."
Abe, the nation's longest serving premier, is set to resign due to his worsening health after almost eight years in the office, Reuters reported, citing a source close to a ruling party official. aggressive stimulus and close collaboration with the central bank have helped to revitalise Japanese shares, with the Nikkei reaching a 27-year high in 2018.
"The market has rebounded a bit for now but I think we need to be cautious, going into next week," said Shingo Ide, chief equity strategist at NLI Research Institute.
"Whoever succeeds him, it will be tough to garner strong support and political uncertainties will likely weigh on markets."
The broader Topix .TOPX lost 0.68% to 1,604.87, with turnover rising to a more than two-month high of 2.825 trillion yen ($26.60 billion).
Growth shares .TOPXG lost 1.21% while value shares .TOPXV were almost flat, as investors rotated into financials and other battered value shares following the U.S. Federal Reserve's new long-term policy strategy to allow higher inflation.
The Fed's announcement boosted U.S. bond yields to a 3-1/2-month high of 0.789% US10YT=RR .
Dai-ichi Life 8750.T jumped 4.4%, while T&D Holdings 8795.T gained 4.2%. Among banks, Mizuho 8411.T added 1.6%, Sumitomo Mitsui Trust 8309.T gained 3.2% and Sumitomo Mitsui Financial 8316.T climbed 2.2%.
"It is becoming clear that the long-term U.S. bond yields have bottomed out. So, investors who haven't prepared their positions for rising yields would want to buy insurers and financials as hedge," said Takenori Yamamoto, a fund manager at Norinchukin Zenkyoren Asset.
On the other hand, investors booked profits from tech shares and other recent strong performers.
The index of Mothers start-up shares .MTHR fell 4.66%. ($1 = 106.2100 yen)
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