May 22 (Bloomberg) -- Japanese stocks fell as concern the U.S. will eventually lose its top credit rating boosted the yen, hurting earnings prospects for exporters and overshadowing the Bank of Japan’s upgrade of its economic assessment.

Toyota Motor Corp., which cut its second-half dividend this month, retreated 2.2 percent as the yen appreciated beyond 94 per dollar for the first time in two months. Bridgestone Corp., a tiremaker that earns three-quarters of its revenue overseas, sank 2.5 percent after the Washington Post said General Motors Corp. will file for bankruptcy. Japan Tobacco Inc., which plans to raise its full-year dividend, jumped 1.7 percent.

“When the yen strengthens beyond 95, concern grows among investors that companies will lower their earnings forecasts,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which oversees the equivalent of $6.1 billion. “I’m assessing earnings results and replacing companies that cancel dividends with the ones that maintain or boost payouts.”

The Nikkei 225 Stock Average fell 38.34, or 0.4 percent, to close at 9,225.81. The broader Topix index fell 5.56, or 0.6 percent, to 875.88, with the value of stocks traded in Tokyo tumbling to a two-month low. For the week, the Nikkei lost 0.4 percent, while the Topix dropped 0.7 percent.

Shares fell even after the Bank of Japan raised its assessment of the economy for the first time since July 2006.

“Economic conditions have been deteriorating, but exports and production are beginning to level out,” the bank said in a statement. Previously it said the world’s second-largest economy had “deteriorated significantly.”

Expensive Market

The Nikkei was up 4.1 percent on the year, compared with a 1.7 percent decline in the Standard & Poor’s 500 Index. Companies on the Nikkei trade at 40 times their estimated net income for this fiscal year, making Japanese equities the most expensive among the world’s five biggest markets, according to Bloomberg data.

Bill Gross, co-chief investment officer of Pacific Investment Management Co. said in a televised interview the U.S. will “eventually” lose its top AAA credit rating. Standard & Poor’s yesterday slashed its outlook on the U.K.’s AAA rating to “negative” from “stable,” citing swelling debt.

Toyota, the world’s biggest carmaker, dropped 2.2 percent to 3,570 yen and was the most actively traded stock by value in Tokyo. Shin-Etsu Chemical Co., a silicon-wafer maker that earns almost two-thirds of its sales overseas, slid 2.9 percent to 5,000 yen. Chemical makers contributed the most to the Topix’s slump.

No Intervention

The Japanese currency strengthened to as much as 93.87 per dollar, a level not seen since March 19, from 94.56 at the close of Tokyo stock trading yesterday. Japanese large manufacturers anticipate the yen will trade at an average of 97.18 versus the dollar this fiscal year, the Bank of Japan’s Tankan quarterly survey showed last month.

The yen strengthened further after Finance Minister Kaoru Yosano told reporters today that Japan isn’t considering currency intervention.

Bridgestone, the world’s biggest tiremaker, slid 2.5 percent to 1,411 yen. The Washington Post today said the U.S. government will send Detroit-based GM into bankruptcy next week. Separately, the Nikkei newspaper said Bridgestone and other Japanese suppliers are seeking U.S. government guarantees on debts owed by GM and bankrupt Chrysler LLC.

Japan Tobacco, the world’s No. 3 listed cigarette maker, added 1.7 percent to 277,400 yen. Central Japan Railway Co., the country’s largest bullet-train operator, climbed 2.9 percent to 644,000 yen after Mitsubishi UFJ Securities Co. lifted its rating on the stock to “outperform” from “market perform.”

Japan Tobacco plans to boost its annual dividend by 3.7 percent to 5,600 yen for this business year, while Central Japan expects to maintain its full-year dividend of 9,000 yen.

Nikkei futures expiring in June declined 0.5 percent to 9,230 in Osaka and retreated 1 percent to 9,200 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Last Updated: May 22, 2009 03:35 EDT