Nikkei retreats on caution ahead of elections; Canon drops on forecast cut

By Kevin Buckland

TOKYO, Oct 27 (Reuters) - Japan's Nikkei share average declined on Wednesday, giving up most of the strong gains of the previous session, as investors turned cautious ahead of lower house elections on Sunday that could drain support for the country's new prime minister.

Earnings were also in focus, with Canon and Nidec sliding after disappointing investors, while Shinko Electric Indutries and Shimano led gains on the Tokyo bourse after upwardly revising their outlooks.

The Nikkei dropped 159.40 points, or 0.55%, to 28,946.61 at the midday break, after jumping about 500 points the previous day amid earnings optimism.

The broader Topix slid 0.42% to 2,009.84, with 26 of its 33 subsectors declining.

One month into his tenure, Prime Minister Fumio Kishida leads his Liberal Democratic Party into lower house elections on Sunday. A shock by-election loss last weekend has injected an additional level of uncertainty into the contest, with the LDP expected to lose seats but retain an overall majority.

"If the LDP can't secure a majority by itself, that will weaken Kishida's position and lead to political instability," said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.

Inside the LDP, "many will wonder if the party can survive the upper house election next year," and will oust Kishida, Kichikawa said.

Kishida's predecessor, Yoshihide Suga, only lasted a year in the job.

Electrical component-maker Fujikura was the biggest decliner on the Nikkei, falling 8.3%, followed by Canon's 5.5% slide.

Canon revised its operating profit forecast lower as a semiconductor shortage and high crude oil prices pushed up procurement costs.

Nidec fell 3.3% after the precision electric motor maker revised its profit forecast upwards, falling short of market expectations.

At the other end, Shinko Electric Industry surged 12.1% and Shimano jumped 8.6%.

Specialty chemicals company Nitto Denko and Hitachi Construction Machinery also gained strongly after revising forecasts higher, adding 6.4% and 6.3%, respectively.

(Editing by Rashmi Aich)