Nov. 5 (Bloomberg) -- Japanese stocks fell, led by Toyota Motor Corp. and Canon Inc., on concern a drop in the dollar against the yen will erode earnings of exporters.

The Topix index declined 0.6 percent to 1063.31. The dollar fell about 1 percent to 109.58 yen since share-trading closed in Japan yesterday, prompting concern that more exporters will join Fuji Photo Film Co. in lowering their earnings outlooks.

``Companies may cut their forecasts'' because of the dollar's weakness, said Takashi Miyazaki, a strategist at UFJ Partners Asset Management Co. in Tokyo, which manages $8.6 billion in equities. A level of 110 yen against the dollar would ``affect exporters in the next quarter.''

Elsewhere in the region, Sri Lanka's Colombo All Share Index had its largest drop in at least five years after President Chandrika Kumaratunga suspended parliament yesterday and fired three ministers involved in peace talks with Tamil rebels.

Australia and New Zealand Banking Group Ltd. led Australia's S&P/ASX 200 Index 0.7 percent lower, its biggest drop in two weeks, after the central bank unexpectedly raised its benchmark interest rate to cool a housing boom.

Taiwan's TWSE Index added 0.6 percent and South Korea's Kospi rose 1.2 percent, Indonesia's Jakarta Stock Price Index climbed 1.5 percent and Thailand's SET Index added 0.6 percent. All other benchmarks in markets in Asia fell.

The Morgan Stanley Capital International Asia Pacific Index shed 0.3 percent to 84.11. That pared some of a 2.8 percent jump yesterday that followed U.S. reports that bolstered optimism about the pace of growth in the world's largest economy. The index has surged 47 percent since its record low set in April.

Japanese Exporters

Toyota Motor led today's drop in Japan, falling 2.1 percent to 3,350 yen. The stock soared 9.3 percent yesterday after an industry report showed that it and Nissan Motor Co. led U.S. vehicle sales in October.

The overnight drop by the dollar against the yen damped optimism about the carmaker's sales prospects. Every 1-yen gain against the U.S. currency shaves about 20 billion yen from Toyota's annual operating profit, analysts, including Koji Endo at Credit Suisse First Boston Japan Inc., have said. Toyota reported first-half profit rose 23 percent to 524.5 billion yen ($4.81 billion) after the market closed.

Canon, the world's third-largest maker of digital cameras, dropped 4 percent to 5,290 yen. Canon has said a one-yen change against the dollar impacts group sales by 6.1 billion yen and operating profit by 2.5 billion yen.

Honda Motor Co. fell 1.1 percent to 4,510 yen. Japan's second-largest automaker last week cut its full-year operating profit forecast, citing the strength of the yen, which has risen about 6 percent against the dollar since the end of August.

Colombo All Share Tumbles

Fuji Photo, the world's second-largest filmmaker, lost 1.5 percent to 3,270 yen. The company last Friday cut its annual net income forecast by 11 percent, saying a higher than expected average value of the yen against the dollar will depress sales and profit.

A 10-yen variation in the dollar exchange rate has a 30 billion yen affect on sales, and would change operating profit by 10 billion yen, the company said.

In Sri Lanka, the Colombo All Share index tumbled 15 percent to 1161.29, extending yesterday's 5 percent drop.

Kumaratunga, who opposes significant concessions to the separatist Tamil Tigers, triggered a political crisis by dismissing the defense, interior and information ministers. Troops were ordered to guard key installations.

Aitken Spence & Co., which operates hotels and travel packages in Sri Lanka, plunged 20 percent to 240 rupees. Sri Lanka Telecom Ltd., the state-owned phone company, shed 23 percent to 19.25 rupees.

Housing Boom

Australia and New Zealand Banking Group Ltd., the nation's third-largest lender by assets, slid 2.1 percent to A$17.13. National Australia Bank, the Australia's largest lender, fell 0.4 percent to A$30.26.

The Reserve Bank of Australia increased the overnight cash rate target to 5 percent from 4.75 percent. Twelve of 22 economists surveyed by Bloomberg News had forecast a rate increase in December. None expected a rise this month.

``If it wasn't now, it would have been in December,'' said Rob Turner, who helps manage $1.1 billion at AMP Henderson Global Investors' Value Plus unit. The increase ``will certainly slow the housing market.''

Harvey Norman Holdings Ltd., Australia's largest electrical goods retailer, slid 3.9 percent, to A$3.19, on concern higher interest rates will dent demand for televisions, stereos and computers. Boral Ltd., the nation's second-biggest building materials maker, dropped 4.5 percent to A$5.32.

Eight-Month Rally

Stocks in the U.S. yesterday declined on concern that share prices already reflect prospects for earnings growth, after an eight-month rally. Some investors in Asia are also concerned that shares are expensive given the outlook for growth.

``It's hard to envisage how much stronger'' the stock market rally can get, said Matthew Drennan, who oversees $4.1 billion at Zurich Financial Services Australia Ltd., in Sydney. ``We've got good profit recovery, but it can't keep growing at this pace.''

Singapore's Straits Times Index, which yesterday set a 19- month high, shed 0.6 percent. Singapore Airlines Ltd., the national carrier, declined 0.8 percent to S$12.60, slipping from yesterday's 15-month high.

Taiwan's Nan Ya Plastics Corp., the island's biggest maker of plastic chemicals, rose 3.4 percent to NT$48.9 after J.P. Morgan Taiwan said it expects the company to have higher fourth- quarter operating profit.

South Korea's Hyundai Heavy Industries Co., the world's largest ship maker, climbed 7.5 percent to 38,700 won, after Daewoo Securities Co. forecast ship prices may rise as much as 15 percent next year. Samsung Heavy Industries Co. surged 11 percent to 6,160 won.

Aitken Spence & Co. (SPEN SL)
Australia and New Zealand Banking Group Ltd. (ANZ AU)
Boral Ltd. (BLD AU)
Canon Inc. (7751 JT)
Fuji Photo Film Co. (4901 JT)
Harvey Norman Holdings Ltd. (HVN AU)
Honda Motor Co. (7267 JT)
Hyundai Heavy Industries Co. (009540 KS)
Nan Ya Plastics Corp. (1303 TT)
Samsung Heavy Industries Co. (010140 KS)
Singapore Airlines Ltd. (SIA SP)
Sri Lanka Telecom Ltd. (SLTL SL)
Toyota Motor Corp. (7203 JT)

Last Updated: November 5, 2003 03:06 EST