Most Japanese Stocks Advance; Banks Jump on Relaxed Capital Requirements

Most Japanese stocks rose, led by banks, after the Basel Committee on Banking Supervision eased some rule proposals, mitigating concerns that banks will have to raise more capital.

Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, increased 2.5 percent. Seiko Epson Corp. climbed 4.4 percent after the Nikkei newspaper said the printer maker may have posted an operating profit. Toyota Motor Corp., the largest carmaker worldwide, dropped 1.6 percent on a stronger yen. JFE Holdings Inc. declined 3.1 percent after Japan’s second-largest steelmaker forecast full-year profit that was lower than analysts’ estimates.

The Topix index gained less than 0.1 percent to 846.12 with about four stocks rising for every three that declined at the 3 p.m. market close in Tokyo. The Nikkei 225 Stock Average slid 0.1 percent to 9,496.85 after advancing as much as 0.4 percent.

“The Basel Committee’s easing of restrictions gives investors a reason to take another look at Japanese banks, which have been cheap recently,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “It eases concerns about capital raising.”

Futures on the Standard & Poor’s 500 Index slipped 0.2 percent in New York today. The S&P 500 gained 1.1 percent to 1,115.01 yesterday after FedEx Corp., the second-largest U.S. package-shipping company, boosted its profit forecast and a report showing improved new-home sales eased concern the economic recovery will stall.

Topix Valuations

The Topix has lost 6.8 percent in 2010, compared with a drop of less than 0.1 percent by the S&P 500 and a 1.3 percent gain by the Stoxx Europe 600 Index. Stocks in the Japanese benchmark are valued at 16.4 times estimated earnings, compared with 13.5 times for the S&P and 11.9 times for the Stoxx.

Banks advanced the most on the Topix after the Basel Committee on Banking Supervision agreed yesterday to allow certain assets, including minority stakes in other financial companies, to count as capital, according to a statement. The committee set a leverage ratio to apply to banks globally for the first time, which could become binding by 2018, pending further adjustments to the method of calculating banks’ assets.

Mitsubishi UFJ increased 2.5 percent to 419 yen. Sumitomo Mitsui financial Group Inc., Japan’s No. 2 publicly traded bank, advanced 2.8 percent to 2,587 yen. Mizuho Financial Group Inc., Japan’s third-biggest bank, rose 2.2 percent to 139 yen.

Relaxed Regulations

“Changes in the restrictions by the Basel Committee will boost the common equity capital ratio by about 1 percent at Japanese mega banks,” according to Shinichi Ina, a Tokyo-based analyst at Credit Suisse Group AG. “Relaxation of the regulations will remove remaining concerns about equity capital increases.”

Ina maintained his ratings on the banks at “outperform.”

Seiko Epson leapt 4.4 percent to 1,156 yen. The company may have earned 2 billion yen ($23 million) in operating profit in the first quarter after expecting a loss, the Nikkei newspaper reported.

“Corporate earnings are good, so companies which reported strong earnings should be targets of buying,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.

Investors’ concerns that U.S. economic growth will slow helped boost companies that rely on domestic sales. Osaka Gas Co., Japan’s second-biggest natural gas provider, gained 1.3 percent to 323 yen. Seven & I Holdings Co., Japan’s largest operator of convenience stores, advanced 1.2 percent to 2,068 yen. Tokyu Corp., a railway operator, rose 1.9 percent to 382 yen. At least 70 percent of these companies’ revenue derives from domestic sales.

U.S. Home Sales

Sales of U.S. new homes increased 24 percent in June from May to an annual pace of 330,000, the second-lowest in data going back to 1963 after May’s downwardly revised 267,000 pace, according to the Commerce Department.

“The level of new home sales was still low, so we cannot completely be optimistic about the U.S. economic outlook,” said Naoteru Teraoka, general manager at the investment unit of Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $22 billion.

Exporters weighed on the market after the yen strengthened. Toyota slid 1.6 percent to 3,040 yen and was the heaviest drag on the Topix. Nintendo Co., the world’s biggest maker of portable video-game players, sank 1.2 percent to 24,330 yen. Fanuc Ltd., an industrial-robot maker that earns 80 percent of its revenue outside Japan, lost 0.9 percent to 10,400 yen.

Earnings Concerns

The yen appreciated to as much as 86.83 against the dollar, compared with 87.47 at the close of stock trading in Tokyo yesterday. Against the euro, Japan’s currency strengthened to 112.79 from 112.94. The stronger yen reduces income when overseas revenue is converted into local currency.

“Strong earnings are positive for the market, but sentiment may worsen if the yen’s appreciation causes companies to make conservative earnings forecasts,” Chuo Mitsui’s Teraoka said.

Nomura Securities Co. cut forecasts for the dollar against the yen, citing a slowing U.S. economy and expectations the Federal Reserve won’t raise interest rates until the first half of 2011. It expects the dollar to trade at 90 yen by the third quarter of this year from 95 yen previously, it said in a research note dated yesterday. The dollar will finish 2010 at 87.5 yen from an earlier estimate of 97 yen, the note said.

JFE Holdings slumped 3.1 percent to 2,656 yen, the largest decline in the Nikkei. The steelmaker forecast 120 billion yen ($1.38 billion) in full-year net income, lower than the median estimate of 178.4 billion yen by 21 analysts surveyed by Bloomberg News.

To contact the reporters for this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net.

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