Japanese Stocks Drop on Europe Crisis Deadlock, China

Japanese stocks fell, with the Nikkei 225 Stock Average (NKY) close to erasing its gain this quarter, on concern that the outlook for exporters is dimming amid slower growth in China and squabbling by European policy makers.

Brother Industries Ltd. (6448), an office-equipment maker that gets almost 30 percent of sales from Europe, dropped 2.5 percent. Komatsu Ltd. (6301), a construction machinery maker that gets 14 percent of its sales from China, lost 1.6 percent after a private report showed a drop in optimism in the world’s second largest economy. Renesas Electronics Corp. surged by its daily limit on speculation a Japanese state-backed fund may counter a KKR & Co. offer in a bid for the chipmaker.

The Nikkei 225 Stock Average fell 0.5 percent to 9,069.29 at the 3 p.m. close in Tokyo. Volume on the gauge was nearly 10 percent less than the 30-day average. The broader Topix Index (TPX) lost 0.4 percent to 753.68.

“There’s a sense of irritation about progress in Europe,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., which oversees about $77 billion. “Economic data in Japan, Europe and China shows economies remain in bad shape. Investors are finding it difficult to change their positions. They don’t know yet whether the recent stimulus will work. On the other hand, if the economy gets worse, there’s an expectation for more stimulus, which will provide a boost to the market.”

The country’s benchmark equity gauge retreated last week even after the Bank of Japan unexpectedly expanded its stimulus program to keep the rising yen from undermining a recovery. The declines have pared the measure’s increase for the period since June 30 to 0.7 percent.

BOJ Minutes

Bank of Japan board members said at their Aug. 8-9 meeting in Tokyo that the Japanese economy was picking up gradually, according to minutes released today.

Last week, the Nikkei 225 dropped 0.5 percent, halting a two-week advance, as an escalating territorial dispute between Japan and China and signs of a deeper economic slump overshadowed unexpected stimulus measures by the Bank of Japan.

Futures on the Standard & Poor’s 500 Index slid 0.2 percent today on expectations U.S. consumer spending in the U.S. stagnated in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum, analysts said before a report due Sept. 28.

German Chancellor Angela Merkel and French President Francois Hollande underlined Franco-German disagreement over the weekend as they clashed on a timetable to introduce joint oversight of the region’s banking sector, with Merkel rebuffing Hollande’s appeal to activate it “the earlier, the better.”

Brother Industries sank 2.5 percent to 786 yen. Ricoh Co. (7752), an office-equipment and camera maker that obtains more than 20 percent of its revenue in Europe, lost 2.2 percent to 709 yen.

China Reports

China’s manufacturers and retailers are less optimistic about sales than they were three months ago and more companies are cutting jobs, according to a survey modeled on the U.S. Federal Reserve’s Beige Book.

The China Beige Book, through interviews of more than 2,000 company executives and bankers from Aug. 9 to Sept. 3, found limits to monetary easing after interest-rate cuts in June and July, with banks loosening credit while fewer companies are borrowing, according to a summary from CBB International LLC, the New York-based researcher that conducted the survey.

Komatsu slipped 1.6 percent to 1,567 yen. Fanuc Corp. (6954), a producer of robotics for Chinese factories, declined 1.3 percent to 13,450 yen.

‘Worsening Relations’

Exporters to China also declined amid worsening relations between Japan and the nation in a dispute over control of a group of islands. Three Chinese patrol vessels were spotted close to the islands, known as Senkaku in Japanese and Diaoyu in Chinese, Chief Cabinet Secretary Osamu Fujimura told reporters today in Tokyo. At least six of 10 Chinese patrol vessels in the area entered Japanese waters last week.

“There’s concern about worsening relations between China and Japan,” Resona Bank’s Kurose said. “Psychologically, investors are sensitive about companies that rely on China. The impact from the relations is limited to exporters to China.”

Canon Inc. (7751), which gets 80 percent of its revenue abroad, slid 3.9 percent to 2,689 yen after the company said on Sept. 22 it halted its factory in China’s Zhuhai from Sept. 21 amid concern caused by protests over the disputed islands.

Among other companies that fell, Sumitomo Bakelite Co. (4203) tumbled 5.7 percent to 297 yen after cutting its first-half net income forecast 30 percent to 2.3 billion yen ($29 million). The resin maker reduced its planned dividend to 5 yen from 7.5 yen in the six months ended Sept. 30, citing rising materials costs and stagnant demand in electronics industry. Goldman Sachs Group Inc. lowered the target price on Sumitomo Bakelite to 400 yen from 430 yen.

Renesas Electronics Corp. (6723) gained the most among the Topix’s 1,674 members, rising by its daily limit of 80 yen, or 31 percent, to 336 yen as a Japanese state-backed fund may join two of the nation’s largest manufacturers in a bid for the unprofitable chipmaker, countering an offer from KKR & Co.

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

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