Japan's Nikkei retreats from 6-week high as investors lock in gains

By Rocky Swift

TOKYO, Oct 2 (Reuters) - Japan's Nikkei 225 .N225 retreated from a 6-week high on Friday as investors locked in gains and turned cautious over the outlook for interest rates, inflation, and geopolitical risks.

The benchmark Nikkei 225 .N225 slid 0.79% to 68,413.03, still on track for a 3% advance on the week. The broader Topix .TOPX slipped 0.57% to 4,108.53.

US stocks ended higher overnight as Treasury yields retreated from multi-decade highs, but the overall tone remained choppy with investors focused on the Federal Reserve's rate trajectory and inflation risks.

In Japan, data showed core inflation in Tokyo accelerated in September at the fastest pace in 10 months, bolstering the case for further rate hikes. Geopolitical tensions also weighed, with the US-Iran war in the Middle East and fresh disruptions to global energy markets after China suspended oil product exports beyond Hong Kong and Macau.

After the Nikkei's 3.3% surge on Thursday, "concerns about short-term overheating are likely to lead to profit-taking," according to a note by Yuta Okamoto, an analyst at Tokai Tokyo Intelligence Laboratory.

Even so, the outlook for domestic shares remains positive, he added, bolstered by the Bank of Japan's tankan survey released on Thursday showing sentiment among large manufacturers rose for a sixth straight quarter.

"It appears that expectations for a rise in Japanese share prices, based on earnings prospects, remain high," Okamoto wrote.

Breadth was negative, with 53 advancers in the Nikkei 225 against 170 decliners and two unchanged.

The largest losers were SoftBank Group 9984.T, down 5.27%, followed by Taiyo Yuden 6976.T, trading 4.98% lower, and Tokyo Electron 8035.T, which lost 3.66%.

The largest gainers in the index were Furukawa Electric 5801.T, up 6.25%, followed by Baycurrent 6532.T, 6.04% higher, and Mitsui Kinzoku 5706.T, which added 5.40%.