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Japan’s Topix Slips as U.S. Debt Impasse Clouds Exporter Outlook

Japan’s Topix index fell for the second time this week as lack of progress in U.S. talks to avoid a default on the government’s debt eroded confidence in the world’s biggest economy, clouding the outlook for exporters.

Honda Motor Corp., which counts North America as its largest market, declined 0.6 percent. Komatsu Ltd. (6301), a maker of construction equipment that gets about a quarter of its sales in China, dropped 0.7 percent after a report mainland manufacturing may shrink in July for the first time this year. Maruha Nichiro Holdings Inc. (1334) led gains by seafood companies after a report Japan’s beef contamination has spread.

The Topix fell 0.1 percent to 860.11 at the 3 p.m. close of trading in Tokyo, with more than two stocks retreating for each that advanced. The Nikkei 225 Stock Average was little changed at 10,010.39.

“Until the market sees that the debt ceiling is going to be raised, the jitters are not going away,” said Masaru Hamasaki, who helps oversee the equivalent of $18 billion as chief strategist at Toyota Asset Management Co. in Tokyo. “Until we get clarity, markets are going to be unstable.”

Futures on the Standard & Poor’s 500 Index gained 0.3 percent today. The index slipped 0.1 percent yesterday as concern the government will fail to increase the debt limit before Aug. 2 overshadowed higher-than-estimated earnings at Apple Inc.

Divergent Paths

A proposal for a $3.7 trillion debt-cutting plan is facing resistance from House Republicans as lawmakers intensify efforts for a compromise less than two weeks before a threatened default. President Barack Obama plans to renew talks at the White House this week with congressional leaders as the Democratic-led Senate and Republican House pursue divergent paths toward ending the stalemate.

“Nothing has been decided yet in the U.S., even though the deadline for raising the U.S. borrowing limit is approaching,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. in Tokyo.

Shares of exporters dropped after sales of previously owned U.S. homes unexpectedly declined in June to a seven-month low, signaling the housing industry that triggered the U.S. recession has yet to recover.

Honda dropped 0.6 percent to 3,165 yen. Toyota Motor Corp. (7203), the world’s largest carmaker, declined 0.5 percent to 3,310 yen. Sony Corp. (6758), Japan’s biggest exporter of consumer electronics by sales, dropped 0.8 percent to 2,077 yen.

China Manufacturing

The yen appreciated to 78.62 against the dollar today, from 79.07 at the close of stock trading in Tokyo yesterday. A stronger yen hurts Japanese exporters because it cuts the value of overseas sales.

Companies that sell machinery in China declined after a purchasing managers’ index indicated manufacturing may contract in July for the first time in a year.

Komatsu sank 0.7 percent to 2,504 yen. Hitachi Construction Machinery Co., a maker of excavators and cranes that counts China as its largest market, dropped 0.7 percent to 1,664 yen.

Papermakers declined after Bank of America Merrill Lynch said domestic paper shipments in June fell 3.7 percent from a year earlier. Oji Paper Co., Japan’s largest maker of pulp products and cardboard, lost 2 percent to 393 yen. Nippon Paper Group Inc. (3893), the No. 2, dropped 2.2 percent to 1,780 yen.

Brussels Meet

Banking shares advanced as German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed on a joint position to solve Greece’s debt crisis on the eve of a summit convened to stamp out contagion in European bond markets.

Details will be released today when euro region leaders meet in Brussels, the governments said in a statement after seven hours of talks in Merkel’s Chancellery in Berlin. The discussions also included European Central Bank President Jean- Claude Trichet and European Union President Herman van Rompuy, who participated by telephone.

Mitsubishi UFJ Financial Group Inc. (8306) advanced 1.3 percent to 394 yen. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second- largest publicly traded bank, gained 0.5 percent to 2,442 yen.

Seafood companies gained after the government said more Japanese cattle have been contaminated by radioactive cesium, spurring speculation demand will rise for alternatives to beef. Maruha Nichiro gained 6.3 percent to 136 percent, the most in four months. Smaller Tohto Suisan Co. climbed 9.6 percent to 148 yen.

Tainted Meat

The number of beef cattle fed with hay contaminated by radiation rose to 1,256 by yesterday, Kazutoshi Nobuto, a spokesman for the agriculture ministry, said today in Tokyo. The government on July 19 banned beef shipments from areas near the crippled Fukushima Dai-Ichi nuclear plant north of Tokyo, after finding cattle were fed contaminated hay.

NOK Corp. (7240), a maker of oil seals and rubber products, surged 11 percent to 1,495 yen, the biggest gain since March 2009. The company forecast net income will rise 33 percent to 22.1 billion yen ($280 million) this fiscal year. The company had delayed its earnings forecast because of damage from Japan’s March 11 earthquake.

“The outlook is unclear in so many different areas: Europe’s debt crisis, the U.S. debt ceiling, Japan’s recovery from the disaster,” Toyota Asset Management’s Hamasaki said. “Until these things are cleared up, markets are going to be unsettled.”

To contact the reporter on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net.

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

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