Japan Stocks Fall on U.S. Fiscal Cliff, China Congress

Japanese stocks fell the most in four weeks as President Barack Obama’s re-election set the stage for a budget showdown to avert the so-called fiscal cliff, and as China’s Communist Party convened to pick new leadership.

Honda Motor Co. (7267), a carmaker that counts North America as its biggest market, sank 3.5 percent. Komatsu Ltd. (6301) fell 2.2 percent after Japan’s machinery orders fell more than expected. Oki Electric Industry Co. and Citizen (7762) Holdings Co. declined the most on the Nikkei 225 Stock Average (NKY) after cutting their earnings forecasts.

“There is no easy solution to the fiscal cliff problem, fueling uncertainty in markets,” said Seiji Iwama, who manages about 45 billion yen ($563 million) in assets at Daiwa SB Investments Ltd. in Tokyo. Japan’s machinery orders are “showing that industry is still deteriorating.”

The Nikkei 225 fell 1.5 percent to 8,837.15 at the 3 p.m. close in Tokyo, declining the most since Oct. 10. Volume on the gauge was almost 15 percent below the 30-day average. The broader Topix (TPX) Index lost 1.4 percent to 735.35, with all but one of its 33 industry groups falling.

The Topix has risen 2.3 percent since Sept. 6 after the European Central Bank started a global wave of stimulus to boost growth, with the U.S. Federal Reserve and the Bank of Japan following suit. Shares on the equity gauge traded at 0.9 times book value, compared with 2.1 for the Standard & Poor’s 500 Index and 1.5 for the Europe Stoxx 600 Index.

Fiscal Cliff

Futures on the S&P 500 added 0.3 percent today. The Dow Jones Industrial Average posted its biggest decline in a year yesterday as investors focused on the fiscal cliff, $607 billion of tax increases and spending cuts set to kick in automatically in January. The Congressional Budget Office has said the U.S. economy will contract next year unless the president reaches a compromise with Congress to keep the increases and cuts from taking effect.

“The U.S. economy will enter into recession unless the country avoids the fiscal cliff,” said Mitsushige Akino, Tokyo- based chief fund officer at Ichiyoshi Asset Management Co., which oversees about 30 billion yen. “In that case, the global economy will also go into recession. The process for solving the fiscal-cliff issue is expected to run into trouble.”

Honda sank 3.5 percent to 2,395 yen. Toyo Tire & Rubber Co., a tiremaker that gets a third of its sales in North America, slipped 2 percent to 194 yen.

Machinery Makers

Stocks also fell after Japan’s machinery orders declined 4.3 percent in September from the previous month as slowing global demand hurts exports, while the nation’s current account surplus narrowed to its lowest level for the month since at least 1985. The median of 29 estimates in a Bloomberg News survey was for a 2.1 percent drop.

Komatsu, the world’s second-biggest maker of construction equipment, retreated 2.2 percent to 1,720 yen. Toshiba Machine Co. lost 2.5 percent to 348 yen.

Some 551 of the 1,675 Topix companies post earnings results this week. Of the 314 companies on the gauge which have reported quarterly revenue since Oct. 1 and for which Bloomberg News has estimates, 66 percent have missed projections.

Oki Electric Industry plunged 9.4 percent to 77 yen after the maker of communication equipment slashed its net income forecast 41 percent to 6.5 billion yen in the year ending March 31, citing falling sales in Spain.

Citizen tumbled 7.9 percent to 361 yen after the watch manufacturer cut its profit forecast 29 percent to 8.5 billion yen, citing slumping demand in Europe and China.

Isuzu Motors Ltd. (7202) jumped the most on the Nikkei 225, rising 4.7 percent to 448 yen. The carmaker boosted its full-year net- income forecast 12 percent to 91 billion yen, citing cost cuts.

China Changeover

In China, the nation’s Communist Party started its 18th Congress in Beijing today, with delegates meeting over several days to pick a new leader. Xi Jinping will probably replace Hu Jintao as general secretary of the party that’s ruled China since 1949.

Exporters to Europe fell after the European Commission cut its growth forecast for the euro zone as the debt crisis ravages southern Europe and erodes the economic performance of Germany. The 17-nation bloc’s economy will expand 0.1 percent in 2013, down from a May forecast of 1 percent, the commission said yesterday. It cut the forecast for Germany, Europe’s largest economy, to 0.8 percent from 1.7 percent.

The euro fell as much as 101.75 yen today in Tokyo, compared with 103.01 at the close of stock trading yesterday. A weaker euro cuts the value of European income at Japanese companies when converted into their home currency.

Canon Inc., which counts Europe as its biggest market, lost 2.5 percent to 2,505 yen. Nippon Sheet Glass Co., a glassmaker that generates about 40 percent of its sales in Europe, slid 2.7 percent to 72 yen.

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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