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Nomura Downgrades Japan's Stocks on Weakening Outlooks for Profit, Economy

Nomura Holdings Inc., Japan’s largest brokerage, cut its recommendation on Japanese shares to “neutral,” citing a weaker profit outlook and slower economic- growth prospects.

“The recovery in Japanese earnings is already beginning to lose momentum,” Nomura analysts including Ian Scott wrote in an e-mailed report dated July 23. The brokerage also today downgraded its forecast for growth in the country as a strengthening yen threatens the export-fueled rebound.

The Nikkei 225 Stock Average has slid 14 percent this fiscal year on concern the European debt crisis will reduce earnings for exporters in the world’s second-largest economy. Nomura said gains in corporate profits have not matched the speed at which they tumbled in the global recession, and recommends higher allocations than before in emerging markets and Europe excluding the U.K.

Japan’s economy will expand 2.6 percent this fiscal year and 1.5 percent in the year ending March 2012, revised down from previous forecasts of 2.7 percent and 2.1 percent growth, according to Nomura. Slower growth abroad and a stronger currency will damp the recovery in exports, and may prompt the Bank of Japan to ease policy further to support the economy, the report said.

The central bank may resort to “more extreme measures” such as increasing its purchases of public debt as the government steps up its calls for additional easing, Nomura said.

Editors: Sam Waite, Darren Boey

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

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