Japanese Stocks Gain as Company Earnings Overshadow European Debt Concerns

Japanese stocks gained as better earnings outlook among Japanese companies overshadowed concerns about the Europe’s debt crisis and the weaker euro.

Sumitomo Heavy Industries Ltd. (6302), a maker of heavy electric machinery, surged 12 percent after forecasting profit will rise. Denki Kagaku Kogyo K.K., a chemical products maker, soared 8 percent after saying it expects higher profit this fiscal year. Toyota Motor Corp. (7203), the world’s biggest carmaker, led gains in carmakers after the Nikkei newspaper reported its output may return to normal earlier than expected. Nintendo Co., a video- game console maker that gets a third of its revenue from Europe, retreated 1.6 percent.

“Earnings are gradually improving day by day, and that’s being reflected in the stock market,” said Seiichiro Iwamoto, who helps oversee about $35 billion in Tokyo at Mizuho Asset Management Co.

The Nikkei 225 Stock Average gained 0.3 percent to 9,818.76 as of the 3 p.m. close after swinging between gains and losses more than 10 times. The broader Topix rose 0.4 percent to 856.46, with about three shares rising for every two that fell.

Sumitomo Heavy surged 12 percent to 597 yen after saying it expects an 18 percent gain in operating profit to 54 billion yen ($668 million) this fiscal year as growing China and other emerging markets may boost its sales.

Denki Kagaku soared 8 percent to 448 yen after forecasting net income will increase by 25 percent to 18 billion yen. Sumitomo Heavy and Denki Kagaku had the steepest advances in the Nikkei 225. (NKY)

Toyota’s Output Return

The Topix has declined 8 percent since March 10, the day before a magnitude-9 earthquake and tsunami devastated Japan’s northeast coast, disabled a nuclear power plant and disrupted supply chains at companies from Toyota to Canon Inc.

Toyota rallied 1.7 percent to 3,250 yen, contributing the most the Topix’s gain, after the Nikkei newspaper reported its output may return to normal two to three months earlier than expected as a recovery in the supply of parts. A gauge that includes carmakers was the biggest contributor to the Topix’s gain among its 33 industry groups, after the sector slid as much as 0.8 percent earlier today.

“Toyota’s current stock price is being supported by its valuation,” said Gouya Nakao, investment manager at Sompo Japan Nipponkoa Asset Management Co. “It’s too early to price in its earnings recovery, but we can expect the shares to move up going into summer, if uncertainty starts to clears up, like the media reports on early output recovery.”

Greece’s Credit Rating

In Europe, Greece’s credit rating was cut two levels to B from BB- by Standard & Poor’s, which said further reductions are possible as the risk of default rises. Another cut would make Greece the lowest-rated country in Europe as yesterday’s reduction, the fourth by S&P since April 2010, left it level with Belarus. Also, Moody’s Investors Service yesterday placed Greece’s B1 rating on review for downgrade.

Nintendo sank 1.6 percent to 19,120 yen. Nikon Corp. (7731), a camera maker that gets about a quarter of its revenue from Europe, retreated 0.3 percent to 1,671 yen, after falling as much as 1.6 percent earlier today.

The yen appreciated to as high as 114.80 against the euro today in Tokyo, compared with 115.97 at the close of stock trading yesterday. Against the dollar, Japan’s currency strengthened to 80.16 from 80.63. A stronger yen reduces overseas income at Japanese companies when converted into their home currency.

Earnings Announcements

Of the 634 companies that have reported results for the latest quarter, 106 have exceeded analysts’ estimates, while 121 have missed them, according to data compiled by Bloomberg.

Toshiba Corp. (6502), the world’s No. 2 maker of flash-memory chips, jumped 3.7 percent to 451 yen, the second-biggest contributor to the Topix’s advance, after saying profit will climb to a record as demand for storage chips offsets the impact of Japan’s March 11 earthquake and tsunami.

Softbank Corp. (9984), the exclusive provider of Apple Inc. (AAPL)’s iPhone in Japan, slid 2.9 percent to 3,135 yen, the most active stock by value in Japan and the steepest decline in the Nikkei 225, after Goldman recommended investors sell the stock. Softbank yesterday said full-year profit and sales will climb, without giving specific forecast. Operating profit at Softbank for fiscal 2011 may not beat the brokerage’s estimate or Bloomberg consensus, Goldman said a Japanese-language report dated today.

To contact the reporters on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net.

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

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