TOKYO, Sept.29 (Reuters) – Japanese stocks fell more than 2% on Wednesday after heightened inflation fears hit Wall Street stocks overnight, as investors awaited the leadership election of the Japanese ruling party that will decide the country’s next prime minister.

The Nikkei average fell 2.48% to 29,563.18 at 02:24 GMT, reaching its lowest level since September 6. The larger Topix lost 2.42% to 2,031.28.

The S&P 500 Index fell 2.04% in its largest single-day percentage decline since May, as growing concerns about inflation pushed up borrowing costs in the United States.

The ruling Liberal Democratic Party in Japan will begin voting for a new leader at 1:00 p.m. Japanese time (04:00 GMT) and the results of the polls for grassroots members and lawmakers are expected to be announced at 2:20 p.m.

Taro Kono, Fumio Kishida, Sanae Takaichi and Seiko Noda are vying for the first position. Market players expect Kono or Kishida to win.

Kono’s victory is seen as positive for renewable energy companies and actions related to digitization and negative for power companies. If Takaichi wins, given his call for further reflationary policies, the yen could fall and stocks could win.

“Investors want to confirm who will be the next prime minister before they start betting,” said Takatoshi Itoshima, strategist at Pictet Asset Management.

“The focus is on how the market will react to election results. With a sharp drop in the Topix this morning, the central bank could step in to support the market.”

Tech stocks led the decline, with Tokyo Electron falling 4.83%, Daikin Industries losing 4.27% and Advantest dropping 4.9%.

Travel-related stocks outperformed in hopes of increased demand as the government plans to lift the coronavirus state of emergency in all regions on Thursday for the first time in nearly six months.

Airlines rose 1.03%, one of only two sectors to advance among the 33 industrial sub-indexes on the stock market. The other sector that rose was shipping, which edged up 0.17%. (Reporting by Junko Fujita and Hideyuki Sano; Editing by Subhranshu Sahu)