Japan’s Topix Drops Near Post-Quake Low After More S&P Downgrades for U.S.

Japan’s Topix declined for a sixth day, erasing almost all of its gains since the March earthquake, as ripple effects from Standard & Poor’s downgrade of the U.S.’s credit rating roiled global markets.

Mitsubishi UFJ Financial Group Inc. (8306), Japan’s largest bank by market capitalization, lost 2.4 percent. Toyota Motor Corp. the world’s biggest carmaker, slipped 1.9 percent. Inpex Corp. (1605), Japan’s No. 1 oil explorer, sank 5.5 percent after crude prices dropped.

“Overseas investors are basically cashing out of Japanese stocks and that’s hitting the market,” said Masahiko Sato, an analyst at Nomura Holdings Inc. “If you look at the fundamentals, stocks are clearly oversold, but there is so much anxiety out there right now that investors aren’t making rational decisions.”

The Topix lost 1.6 percent to 770.39 at the 3 p.m. close in Tokyo, easing earlier declines of as much as 4.9 percent amid speculation that shares were cheap. The index has fallen 9.6 percent in the past six trading days, dropping close to a bottom of 766.73 set on March 15 after an earthquake and tsunami devastated Japan’s northeast. The Nikkei 225 (NKY) Stock Average fell 1.7 percent to 8,944.48 today.

Global equity markets have lost more than $6.6 trillion in the past two weeks, with indices across Asia dropping more than 20 percent from recent highs. Stocks have plunged as the U.S economy showed signs of slowing and a European debt crisis that has spread from Greece, Ireland and Portugal to Italy and Spain threatens to spill over into the banking system.

Fed Meeting

Mitsubishi UFJ lost 2.4 percent to 363 yen and smaller rival Sumitomo Mitsui Financial Group Inc. decreased 2.2 percent to 2,259 yen.

Federal Reserve Chairman Ben S. Bernanke and his colleagues may strengthen their commitment to record monetary stimulus as soon as today at a regular meeting of the Federal Open Market Committee in Washington. The Fed in June ended a program of bond purchases -- called quantitative easing or QE2 -- designed to support economic growth and prop up asset prices.

“Markets have literally imploded over the last few weeks,” said Todd Martin, Asia equity strategist at Societe Generale SA in Hong Kong in a telephone interview. “The fact that U.S. banks fell 11 percent yesterday to me means that the U.S. is heading toward a potential crisis. Bernanke could be preparing for a QE3 at the end of the month.”

Price-To-Book

Today’s selloff boosted trading volume on the Topix index to its highest level since March 23. Some 2 trillion yen in shares were traded on the first section of the Tokyo Stock Exchange, about 40 percent more than this year’s average.

Still, Japanese stocks eased declines amid speculation that shares are cheap. At the close, companies on the Topix traded at an average 0.91 times estimated book value, the lowest since March 2009. The number compares with 1.77 for the Standard & Poor’s 500 Index and 1.25 for the Stoxx Europe 600 Index. A value below one means that investors can theoretically buy companies for less than the value of their assets.

“Price-to-book ratios have come down enough now that it makes sense for buyers to come back into the market,” said Yutaka Yoshii, a strategist at Mito Securities Co. in Tokyo. “There’s also speculation that the FOMC might take some surprise measures to try to ease the panic in the markets.”

Freddie, Fannie

Futures on the S&P 500 Index gained 0.5 percent today, reversing earlier declines of as much as 3.2 percent. The gauge dropped 6.7 percent yesterday in New York, the most since Dec. 2008, after Standard & Poor’s Ratings Services downgraded debt issued by U.S.-backed mortgage lenders including Fannie Mae and Freddie Mac. The ratings agency on Aug. 5 stripped the federal government of its AAA status.

Shares of Japanese companies ranging from exporters to retailers plunged today, with about four stocks falling for each that rose on the Topix. Toyota Motor dropped 1.9 percent to 2,937 yen. Sony Corp., Japan’s biggest export of consumer electronics, slipped 1.1 percent. Seven & I Holdings Co., a retailer that gets 70 percent of its sales in Japan, dropped 3.5 percent to 1,992 yen.

“It’s pretty much become all about confidence now,” said James Holt, Sydney-based director of BlackRock Investment Management (Australia) Ltd., which oversees about $40 billion. “You’re seeing how effectively confidence and deception is overtaking reality, and that’s the big risk now for stock-market investors.”

Oil companies declined the most among the 33 Topix industry groups after crude prices dropped yesterday to the lowest level since November. Inpex tumbled 5.5 percent to 497,000 yen. Japan Petroleum Exploration Co., the nation’s No. 2 oil explorer, retreated 3.3 percent to 3,360 yen.

“Investors are in a panic,” said Yoshihiro Ito, chief strategist at Okasan Online Securities Co. in Tokyo. “They’re selling even though they know the fundamentals don’t warrant it.”

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