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Japanese Stocks Extend Losses on Death of N. Korean Dictator Kim Jong Il

Japanese stocks extended losses on a report North Korean dictator Kim Jong Il has died, damping demand for riskier assets as concern for East Asian stability grows.

Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, dropped 3 percent along with Samsung Electronics Co. (005930), its South Korean rival. Kawasaki Kisen Kaisha Ltd. (9107), which generates a quarter of its revenue in Asia, led declines among shipping lines. Olympus Corp. (7733) fell 8.9 percent as a report said prosecutors are seeking evidence the scandal-hit camera maker falsified financial reports. Japan Material Co., a producer of chip-making equipment, slid on its first trading day.

The Nikkei 225 Stock Average (NKY) dropped 1.3 percent to 8,296.12 as of the 3 p.m. trading close in Tokyo after falling 1.6 percent last week. The broader Topix index lost 1 percent to 716.38 with all but two of 33 industry groups on the gauge sliding as the Japanese government canceled a meeting to discuss the nation’s monthly economic assessment.

“You can’t take a risk because this incident could affect the balance of economic tensions that already exist in East Asia including Japan, China and South Korea,” said Ayako Sera, a market strategist in Tokyo at Sumitomo Trust & Banking Co., which manages the equivalent of $298 billion. “Rising geopolitical risks are causing people to buy the dollar and sell stocks (TPX)” in search of safety.

Security Meeting

Japanese cabinet officials are attending a security meeting after North Korean state television reported that Kim, 70, died on Dec. 17 of exhaustion brought on by a sudden illness on a domestic train trip. A government statement called on North Koreans to “loyally follow” his son Kim Jong Un. The nation has long threatened the stability of the region, and was blamed for the March 2010 sinking of a South Korean naval vessel and shelled its neighbor’s island last year.

Futures on the Nikkei 225 expiring in March fell as much as 1.7 percent shortly after the report of Kim’s death before trimming the loss to 1.2 percent to 8,300 in Osaka. The dollar, the world’s reserve currency, rose against 15 of its 16 major counterparts including the yen as investors sought security.

“A sell-off in futures won’t last long because it’s not that tensions are mounting between North and South Korea,” said Yutaka Miura, a senior technical analyst at Mizuho Securities Co. “Japanese stocks continue to move along with developments in the U.S. and Europe.”

Futures on the Standard & Poor’s 500 Index (SPXL1) fell 0.7 percent today. The index rose 0.3 percent in New York on Dec. 16 even after Fitch Ratings put credit ratings for France, Belgium, Spain, Slovenia, Italy, Ireland and Cyprus under review for a downgrade, saying a “comprehensive” solution to Europe’s crisis is “technically and politically beyond reach.”

Finance Heads Meet

Finance ministers in the euro region will hold a conference call at 3:30 p.m. Brussels time today to meet a self-imposed deadline to channel additional bailout funds and put together new budget rules to stem the debt crisis and buoy investor confidence.

“Time is running out for policy makers to execute what they decided to do,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $120 billion. “It’s not that something big will happen and change the whole market sentiment. It rather depends on the accumulation of small steps.”

Exporters fell, with consumer electronics makers contributing the most to the Topix index’s decline. Sony dropped 3 percent to 1,319 yen. Panasonic Corp. (6752) fell 5 percent to 649 yen. Nintendo Co., a video-game company that gets 34 percent of its sales in Europe, slid 3.1 percent to 10,590 yen.

Shippers Lead Decline

Shipping lines fell the most among the 33 industry groups in the Topix index. Kawasaki Kisen, Japan’s third-biggest shipping line by sales, fell 5.7 percent to 132 yen. Nippon Yusen K.K. (9101), the largest, fell 4.6 percent to 187 yen. Mitsui O.S.K. Lines Ltd. (9104), ranked second, slid 5.2 percent to 272 yen.

Europe’s debt crisis, now in its third year, has diminished the earnings outlook for Japan’s exporters. The Topix index has fallen 20 percent this year, compared with a 21 percent drop in the Stoxx Europe 600 Index.

Disasters Drag Stocks

Japanese stocks also have been hurt this year by the earthquake and resulting nuclear disaster as well as Thailand’s floods, which hurt output at exporters such as Toyota Motor Corp. and Sony.

Tokyo Electric Power Co., the utility at the center of the worst nuclear crisis since Chernobyl, has fallen 88 percent to become the biggest decliner on the Topix index. SxL Corp. a homebuilder that benefited from reconstruction projects after the nation’s biggest earthquake on record, has jumped 258 percent as the best performer.

Olympus dropped 8.9 percent to 915 yen after Kyodo News reported Dec. 17 that Tokyo prosecutors are seeking evidence of falsified financial reports, citing people involved in the probe. The company has admitted to hiding losses.

Japan Material debuted at 2,447 yen, down from its initial offering price of 2,650 yen. The shares started trading today on the Tokyo Stock Exchange and the Nagoya Stock Exchange.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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