"The report raised expectations that Japan's automakers will start a consolidation and investors were prompted to buy auto shares," said Fumio Matsumoto, chief strategist at Okasan Securities.Japan's Nikkei share average fell on Wednesday, as technology stocks tracked Wall Street's weak finish overnight, while a report of a Honda-Nissan tie-up boosted auto shares.
The Nikkei had slipped 0.21% to 39,281.06 by the midday break and was on track for a fourth straight session of declines.
U.S. stocks retreated on Tuesday and the Dow dropped for a ninth straight session, as investors exercised caution ahead of the Federal Reserve's last policy announcement of the year after economic data indicated consumer spending remained solid.
Technology start-up investor SoftBank Group fell 3.43% and chip-making equipment maker Tokyo Electron inched down 0.25%.
The broader Topix edged up 0.12% to 2,731.48, with the auto sector rising 1.58% to become the top gainer among the Tokyo Stock Exchange's 33 industry sub-indexes.
Honda Motor and Nissan Motor are moving towards a closer tie-up with talks of setting up a holding company, a source said, in the clearest sign yet of reorganisation in Japan's auto industry in response to immense challenges posed by Tesla and Chinese rivals.
"The report raised expectations that Japan's automakers will start a consolidation and investors were prompted to buy auto shares," said Fumio Matsumoto, chief strategist at Okasan Securities.
"The market did not expect the closer tie-up between Nissan and Honda would take place this early. Now, investors expect less competitive automakers, such as Mazda, may be a target for an acquisition." Shares of Nissan surged 22%, while those of Honda rose 2.3%. Mitsubishi Motors jumped 13% and Mazda Motor gained 3.86%.
Okasan's Matsumoto said the Nikkei's gains would be limited toward the end of the year, with foreign investors going on holidays. "But losses will be limited as well, because of the share buybacks by Japanese firms," he said.
