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Japanese Stocks Drop on Strong Yen; Nikkei 225, Topix End 2010 With Losses

Japanese stocks fell the most in a month on the last trading day of the year, as the yen strengthened against the dollar, reducing the outlook for exporters’ earnings. Benchmark indexes ended 2010 with losses.

Tokyo Electron Ltd., a maker of semiconductor equipment that derives more than 60 percent of its revenue abroad, lost 1.3 percent. Fanuc Corp., an industrial-robot manufacturer that gets more than 75 percent of its sales overseas, dropped 1.2 percent. Banks, which were the second-best performer in December, had the second-biggest decline among the Topix’s 33 industry groups. Japan’s stock markets are closed tomorrow and on Jan. 3 for holidays.

“Today’s move represents the full year when the market was driven by the yen,” said Tsutomu Yamada, a market analyst in Tokyo at Kabu.com Securities Co. Investors probably see that “Japan won’t be able to intervene with yen-selling even if the yen strengthens further.”

The Nikkei 225 Stock Average fell 1.1 percent to 10,228.92 at the market close in Tokyo, the sharpest slide among Asia’s major benchmark gauges. The broader Topix index dropped 1 percent to 898.80. The declines were the biggest since Nov. 30 for both indexes. For the month, the Nikkei has risen 2.9 percent, while the Topix is up 4.4 percent, extending a rebound that began in November.

The Topix declined 1 percent this year, while the Nikkei 225 dropped 3 percent, compared with gains of 13 percent by the Standard & Poor’s 500 Index and 11 percent by the Stoxx Europe 600 Index. Stocks in the Topix were valued at 15.6 times estimated earnings on average, compared with 14.8 times for the S&P 500 and 12.5 times for the Stoxx 600.

Performance in 2010

Fanuc was the biggest support for the Topix this year, with a gain of 45 percent, while Toyota Motor Corp., the world’s largest carmaker, was the heaviest drag on the benchmark index, with a 17 percent drop.

Fanuc increased amid expectations for strengthening machine-tool demand. China’s $19.5 billion machine-tool market, the world’s biggest, is forecast to grow by as much as 20 percent a year through 2015, Oxford Economics said. India’s market is forecast to grow by as much as 30 percent a year.

Toyota was hurt by worldwide recalls of its cars. This month the company agreed to pay $32.4 million in recall fines in the U.S. and it accepted a $10 million settlement of a lawsuit involving three traffic fatalities.

Tokyo Electron declined 1.3 percent to 5,140 yen. Fanuc dropped 1.2 percent to 12,470 yen. Nintendo Co., the world’s largest maker of portable video-game machines, retreated 2.4 percent to 23,830 yen.

Toyota and Recalls

The yen appreciated for its ninth straight day to 81.29, compared with 82.26 at the close of stock trading in Tokyo yesterday. It was the strongest intraday level since Nov. 9. Against the euro, Japan’s currency strengthened to 107.61 from 108.02. A stronger yen reduces the value of overseas income at Japanese companies when repatriated.

“People are selling stocks because they are worried the yen will strengthen further while the Japanese market is closed for several days,” said Hideo Arimura, who helps oversee about $2.2 billion at Mizuho Asset Management Co. in Tokyo. “It’s a good time to take profit because stocks rebounded in November.”

The yen is at its strongest annual average level against the dollar since currencies began trading freely in 1971, according to data compiled by Bloomberg and based on each day’s closing price.

Banks Decline

An index of banks, which jumped 10 percent in December, had the second-biggest drop today among the Topix’s industry groups. The monthly gain was also the second largest after mining companies. Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, slumped 1.4 percent to 439 yen. Sumitomo Mitsui Financial Group Inc., the second-largest, retreated 1.9 percent to 2,892 yen. Mizuho Financial Group Inc., the No. 3, fell 2.6 percent to 153 yen.

Inpex Corp., Japan’s No. 1 oil explorer, sank 1.7 percent to 475,500 yen. Japan Petroleum Exploration Co., the nation’s second-biggest oil driller, dropped 1.4 percent to 3,090 yen.

Crude oil for February delivery slipped 0.4 percent to settle at $91.12 a barrel in New York yesterday. Copper futures declined 0.4 percent, after rising to a record this week.

Nomura Research Institute Ltd., an information-technology provider, fell 1.9 percent to 1,808 yen. Pretax profit excluding one-time charges or gains probably declined 20 percent to about 27 billion yen ($331 million) in the April-to-December period as sales of systems for brokerages including Nomura Holdings Inc. were sluggish, the Nikkei reported.

To contact the reporters on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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