Japanese Stocks Drop as Stronger Yen Fuels Growth Concerns; Toyota Slumps
Sept. 7 (Bloomberg) -- Matthew McLennan, a portfolio manager at First Eagle Funds, talks about First Eagle's investment strategy and holdings in bicycle component maker Shimano Inc. and industrial robot-maker Fanuc Ltd. He speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)
Japanese stocks fell for a second day, led by automakers and electronics manufacturers, on increasing concern the yen’s advance against the euro and the dollar will hurt the nation’s export-led recovery.
Toyota Motor Corp., the world’s largest automaker, declined 2.1 percent. Honda Motor Co., which receives 46 percent of its sales from North America, slumped 2.5 percent. Canon Inc., a maker of consumer electronics that gets more than 80 percent of its sales outside Japan, fell 2.1 percent. Nomura Holdings Inc. cut its 2011 earnings outlook for Japanese companies because the strong yen may reduce exporters’ profit.
“The market is avoiding risk because there’s no end to the bad news we’re getting,” said Ayako Sera, who helps oversee about $310 billion as a strategist in Tokyo at Sumitomo Trust & Banking Co. “This is leading to the yen being bought. There’s no mistake that Japanese exporters’ earnings will be hurt just because of the yen’s appreciation.”
The Nikkei 225 Stock Average slid 2.2 percent to 9,024.60 at the close of trading in Tokyo, with just seven stocks gaining. The broader Topix index lost 1.7 percent to 820.99, with 32 of the gauge’s 33 industry groups declining.
The Nikkei is 20 percent below its 18-month high on April 5, a decline some analysts regard as the start of a bear market. The gauge has fallen 14 percent this year as the yen strengthened and concern grew about slowing growth in China, Europe and the U.S.
Exporters Decline
Stocks in the broader Topix index are valued at 14.6 times estimated earnings, compared with 13.1 times for the Standard & Poor’s 500 Index and 11.6 times for the Stoxx Europe 600 Index.
Futures on the Standard & Poor’s 500 Index slipped 0.1 percent. Yesterday, the gauge fell 1.2 percent in New York on concern the European debt crisis will worsen as bank stress tests published in July understated some financial institutions’ sovereign debt holdings, the Wall Street Journal reported, citing its own analysis.
Japanese exporters declined after the yen rose to a 15-year high against the dollar and advanced against the euro, increasing concerns about exporters’ earnings. A stronger yen reduces overseas income at Japanese companies when converted into their home currency.
Yen Strengthens
The Topix Electric Appliances Index and the Topix Transportation Equipment Index were the biggest drags on the Topix’s 33 industry groups today.
Toyota, which receives about 70 percent of its sales abroad, slid 2.1 percent to 2,875 yen, the biggest single contributor to the Topix’s decline. Honda dropped 2.5 percent to 2,744 yen, the second-biggest drag on the Topix index. Canon, the world’s largest camera maker, lost 2.1 percent to 3,510 yen.
The yen appreciated to as much as 105.80 against the euro today, compared with 107.70 at the close of stock trading in Tokyo yesterday. Against the dollar, the yen gained to as much as 83.35 from 84.10, the strongest since 1995.
The yen has strengthened 16 percent this year in the biggest advance among 10 developed-world counterparts as investors sought it as a refuge, Bloomberg Correlation-Weighted Currency Indices show. The gains have prompted policy makers to consider measures to curb the currency’s appreciation, which makes Japanese exporters’ products more expensive overseas.
Nomura, Japan’s largest securities firm, lowered its forecast for year-on-year sales growth of 353 companies excluding financials in the Nomura 400 stock index to 4 percent, down from its June estimate of 4.4 percent. The brokerage also cut its outlook for recurring profit growth to 19.8 percent, down from 21.2 percent. The revisions were centered on export companies that have a high sensitivity to the yen’s movements, the brokerage said in a report dated Sept. 6.
Lower Earnings Outlook
Every one-yen increase against the dollar reduces ordinary profits at Japanese companies by 0.6 percent, Nomura said. By sector, automakers will see the biggest impact with a 2.4 percent decline in profit, while machinery manufactures’ earnings will fall 1.1 percent and electronics makers will see a 0.9 percent decline, the report said.
“The market, which has been watching the yen rising against the euro because of Europe’s deficit crisis, now has to deal with the yen’s rise against the dollar again, too,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. “Japanese exporters are expecting the nation’s currency to be at 90 per dollar and 110 yen for the euro, so this is a harsh situation.”
To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net
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