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Komeito exit from LDP coalition unnerves yen, bond markets

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Nikkei chalks up best week in more than a year

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Uniqlo owner Fast Retailing ( FRCOF ) jumps 5% after record profit

(Updates to recast with political fracture, adds currency and

bond reaction in paragraphs 5-6)

By Junko Fujita

TOKYO, Oct 10 (Reuters) - Japan's Nikkei fell on Friday

as investors took profit ahead of a long weekend, and the

breakdown of the ruling government coalition rattled the

nation's bonds and currency late in the day.

The Nikkei fell 1.01% to 48,088.8, but still notched

its best week in more than a year, rising 5%, helped by a sharp

jump in Uniqlo owner Fast Retailing ( FRCOF ).

The broader Topix slipped 1.85% to 3,197.59.

Komeito, the junior political party in the government's ruling

coalition, rebelled against the Liberal Democratic Party's new

hardline leader Sanae Takaichi in a move that casts doubt over

her premiership bid.

The yen, which was trading near an eight-month low,

strengthened as much as 0.5% to 152.38 per dollar after the

fracture of the 26-year political partnership.

UNWINDING OF 'TAKAICHI TRADES'

The yield on the two-year Japanese government bond (JGB),

the tenor most sensitive to expectations for central bank rates,

slid 2 basis points (bps) to 0.905%. The 30-year JGB yield

jumped 5 bps to 3.225%.

Going into an LDP leadership race on Saturday, the so-called

Takaichi trade was long on stocks and bearish on JGBs,

particularly the longer tenors, on bets of more fiscal and

monetary stimulus.

"The knee-jerk reaction is an unwinding of some of these

Takaichi trades," said Nomura strategist Naka Matsuzawa.

The Nikkei jumped this week after Takaichi won the LDP's

leadership election on Saturday, putting her on course to become

the next prime minister and replace fiscally-hawkish leader

Shigeru Ishiba.

"It was natural that investors wanted to book profits after

the sharp rally," Tokai Tokyo Intelligence Laboratory market

analyst Shuutarou Yasuda said.

"But worries whether Takaichi can successfully secure

coalition partners are growing. The stocks rose on expectations

of Takaichi's fiscal spending, but if the Liberal Democratic

Party cannot form a solid coalition, Takaichi's plans may not go

ahead."

Technology investor SoftBank Group lost 3.14%,

while chip-related shares fell, with Advantest ( ADTTF ) and

Tokyo Electron ( TOELF ) slipping 0.94% and 1.41%, respectively.

Until Thursday, the Nikkei was up by around 6,000 points

from the low hit on September 3. About 70% of the gains came

from the rally in these three firms, said Kazuaki Shimada, chief

strategist at IwaiCosmo Securities.

Fast Retailing ( FRCOF ) jumped 6.65% to become the biggest support

for the Nikkei, after it posted a record high annual profit.

All but one of the Tokyo Stock Exchange's 33 industry

sub-indexes fell, with the brokerage index losing 5%

to become the worst performer.