Japanese Stocks Decline Second Day Ahead of Tax Hike Vote

Japanese stocks dropped for a second day as opposition to a tax increase mounted among lawmakers before a key vote tomorrow and the yen strengthening. Drops were limited as European leaders agreed to cooperate on a regional growth plan ahead of a summit this week.

Nissan Motor Co. (7201), a carmaker that earns almost a third of its revenue from North America, sank 2.7 percent. Renesas Electronics Corp. (6723) lost 2.7 percent after the Nikkei newspaper reported the chipmaker may sell 50 billion yen ($622 million) in new shares. Fanuc Corp., a producer of automation controls for Chinese factories, lost 1.6 percent after China’s economic growth estimate was cut by Citigroup Inc. Hosokawa Micron (6277) Corp., a machine maker that gets 32 percent of its sales in Europe, advanced 1.2 percent.

“Investors are in a wait-and-see mode,” said Naoki Fujiwara, who helps oversee $6.5 billion at Shinkin Asset Management Co. in Tokyo. “Events such the European leaders’ meeting and Japan’s consumption tax talks are happening this week so investors can’t take positions until we know how they will go. ”

The Nikkei 225 Stock Average (NKY) fell 0.7 percent to 8,734.62 at the 3 p.m. close in Tokyo after earlier rising as much as 0.5 percent. Volume was more than 25 percent below the 30-day average. The broader Topix Index slid 0.8 percent to 745.22.

Japanese stocks extended declines after China’s 2012 economic growth estimate reduced to 7.8 percent from 8.1 percent by Citigroup to reflect slowing domestic activity in the second quarter and further weakening of European demand.

Fanuc slid 1.6 percent to 12,620 yen. Komatsu Ltd. (6301), a construction machinery maker that gets 14 percent of its sales in China, slipped 1.2 percent to 1,866 yen.

Tax Battle

About 50 Japanese lawmakers from the ruling Democratic Party of Japan will likely vote tomorrow against proposed social security and tax reform legislation, the Nikkei newspaper reported, without saying where it got the information. The split threatens to break up the ruling party.

“Unless the consumption tax is raised, the government’s fiscal situation will get tighter, interest rates will increase and the yen will strengthen,” said Shinkin Asset’s Fujiwara. “That’s not good for markets. If the consumption tax is raised, it may slightly drag down the economy, but that’s less of a shock than not doing it.”

The Topix (MXAP) has fallen 15 percent from its peak on March 27 on concern the debt crisis in Europe is spreading and as growth in the U.S. and China slows. Stocks on the gauge are valued at 0.88 times book value, with a number below one meaning a company can be bought for less than the value of its assets.

Among companies that fell, Renesas Electronics lost 2.7 percent to 325 yen after the Nikkei newspaper reported the chipmaker may sell new shares to private equity firm KKR & Co.

Euro Falls

The euro fell toward the lowest in more than a week before Italy and Spain sell debt tomorrow amid concern Europe’s fiscal crisis is infecting larger economies in the bloc. The yen appreciated to as high as 110.42 against the euro today in Tokyo, compared with 101.02 when stock opened trading this morning. Against the dollar, the Japanese currency strengthened to as high as 80.11 yen from 80.58. A stronger yen cuts overseas income at Japanese companies when repatriated.

Nissan, which generates about 80 percent of its revenue overseas, sank 2.7 percent to 728 yen. Canon Inc. (7731), the world’s biggest camera maker, slid 2.5 percent to 3,170 yen.

Some stocks linked with Europe gained after Germany, Italy, France and Spain agreed in Rome on June 22 to cooperate on a growth plan of as much as 130 billion euros ($163 billion) for the 17-nation bloc. French President Francois Hollande and Italian Prime Minister Mario Monti have been pushing for a collectively financed stimulus plan. The summit will begin June 28 in Brussels.

Hosokawa Micron

Hosokawa Micron climbed 1.2 percent to 425 yen. Olympus Corp., an optical-equipment maker that generates almost a fifth of its sales in Europe, added 0.8 percent to 1,206 yen.

Futures on the Standard & Poor’s 500 Index slipped 0.5 percent today. The index rose 0.7 percent in New York on June 22 as bank downgrades from Moody’s Investors Service were no worse than the firm had warned. The ratings firm cut Morgan Stanley by two levels rather than a threatened three grades. Banks rose the most among the 24 industry groups on the equity gauge.

-- With assistance from Masaaki Iwamoto in Tokyo. Editors: Jim Powell, Jason Clenfield

To contact the reporter 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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.