Japanese Stocks Fall, Led by Banks After Government Warning on Tepco Loans

Japanese stocks fell, dragged down by banks after the government said public pressure may force financial firms to write off loans to Tokyo Electric Power Co., operator of an earthquake-damaged nuclear reactor.

Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest publicly traded bank, and its closest rival Sumitomo Mitsui Financial Group Inc. (8316) fell at least 2.8 percent after Chief Cabinet Secretary Yukio Edano issued the warning on Tokyo Electric as the government prepares to use tax money to aid the power company. The utility, also known as Tepco, tumbled 5.4 percent after it said one of the reactor cores at its stricken Fukushima Dai-Ichi nuclear plant is more seriously damaged than previously thought.

“If banks write off loans to Tepco, that would cause an adverse effect on the finance market overall,” said Yoshifumi Kikuchi, head of dealing at Nissan Century Securities Co. in Tokyo.

The Nikkei 225 (NKY) Stock Average fell 0.7 percent to 9,648.77 at the 3 p.m. close of trading in Tokyo. The broader Topix slid 1.1 percent to 839.94, with almost six times as many shares declining as advancing.

“People won’t support” using public funds for Tepco unless banks waive some loans made before the March 11 earthquake and tsunami crippled its Fukushima Dai-Ichi nuclear plant, Edano said today in Tokyo. The utility will have to reach agreement with financial institutions to give up some of their loans, he said. “It’s not that we’ll intervene in the matter between private companies, but we will have to decide our government actions based on that,” Edano said.

Inflation Concerns

Stocks also fell amid concern that China’s decision yesterday to raise reserve ratios for its largest lenders for a fifth time this year as it fights inflation may slow global economic growth, dragging down banks and electronics makers the most in the Topix among its 33 industry groups.

Sony Corp. (6758), Japan’s No. 1 electronics exporter, slipped 1 percent to 2,241 yen. Murata Manufacturing Co., a maker of precision electronics that gets more than 80 percent of its revenue outside of Japan, declined 1.1 percent to 5,430 yen.

“Investors are worried inflation may slow a recovery in the global economy,” said Masaru Hamasaki, who helps oversee about $17 billion as chief strategist at Toyota Asset Management Co. in Tokyo. “That may cause a slump in global demand, trimming companies’ earnings outlook”

China’s Decision

China raised banks’ reserve ratios for its largest lenders by 0.5 percentage point to a record 21 percent to restrain prices, the People’s Bank of China said on its website yesterday. The central bank moved after reports showed inflation and lending exceeded economists’ estimates in April, with consumer prices rising more than 5 percent for a second month.

Mitsubishi UFJ slumped 2.8 percent to 383 yen and its closest rival Sumitomo Mitsui sank 3.8 percent to 2,452 yen. They were the most active stocks by value. Mizuho Financial Group Inc. (8411), Japan’s third-biggest publicly traded lender, slipped 3 percent to 130 yen.

Tokyo Electric lost 5.4 percent to 453 after Junichi Matsumoto, a general manager at the utility, said fuel rods in the core of the No. 1 reactor at its Fukushima Dai-Ichi nuclear plant are fully exposed. Also, a government official yesterday said Japan will ask Tepco to compensate farmers, foresters and fishermen for damage incurred following the nuclear accident.

Oil Companies Drop

The Topix has tumbled 9.8 percent since March 10, the day before the magnitude-9 earthquake and tsunami devastated Japan’s northeast coast.

Oil companies had the steepest decline among the Topix’s industry groups after crude for June delivery dropped as much as 1.1 percent to $97.87 a barrel in electronic trading in New York earlier today. Crude has since gained.

Inpex Corp. (1605), the nation’s largest oil explorer, sank 3.9 percent to 541,000 yen and Japan Petroleum Exploration Co. (1662), the No. 2, retreated 4.1 percent to 3,770 yen.

In Japan, this week is the peak for earnings results, with more than 60 percent of the Topix index’s 1,673 companies scheduled to report.

Mitsumi Electric Co., an electronic-parts maker, plunged 7.9 percent to 890 yen, the steepest drop in the Nikkei 225, followed by Taiyo Yuden Co. Mitsumi yesterday said it swung to a net loss of 3.54 billion yen ($44 million) in the year ended March 31, from a year-earlier profit.

Taiyo Yuden, a maker of electronic components, slumped 6.8 percent to 1,023 yen after saying its full-year net loss totaled 5.51 billion yen, wider than its forecast for a 2.5 billion yen loss.

To contact the reporter on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

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

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