Nikkei 225 Declines as Yen Climbs Amid U.S. Budget Talks

Japan’s Nikkei 225 Stock Average (NKY) fell from its highest level since March as the yen strengthened amid concern U.S. budget talks are stalling. The Bank of Japan is scheduled to conclude a policy meeting today.

Canon Inc. (7751), which gets 27 percent of its revenue from the Americas, lost 3 percent. Capcom Co. plunged 9.4 percent after the gamemaker cut its profit forecast and delayed the release of a new game. Mitsubishi Motors Corp. sank 6.6 percent after the transport ministry issued a warning to the automaker for being “passive” after a fourth round of recalls.

The Nikkei 225 lost 1 percent to 10,062.82 as of 12:31 p.m. in Tokyo after reaching its highest level since March 28 yesterday. Volume on the gauge was 77 percent higher than the 30-day average. The Topix Index fell 0.2 percent to 837.56, with about three stocks falling for every two that gained.

“Cracks appeared in the fiscal-cliff negotiations,” said Stan Shamu, Melbourne-based strategist at IG Markets Ltd. “The Republicans failed to come up with a reasonable compromise to President Obama’s proposal. Market participants decided to exercise caution despite U.S. leaders still insisting they are hoping to have something done by Christmas.”

Standard & Poor’s 500 Index futures were little changed today. The gauge slid 0.8 percent yesterday as deteriorating federal budget negotiations fueled concern that $600 billion in automatic tax increases and spending cuts will be triggered if a compromise is not reached by the end of the year.

Budget Battle

White House Communications Director Dan Pfeiffer said President Barack Obama would veto a Republican tax-and-spending proposal because it would put “too big a burden on the middle class.” House Speaker John Boehner’s plan would raise taxes on income over $1 million rather than the $400,000 threshold the president proposed. Lawmakers may vote today on Boehner’s plan.

The yen gained against most major counterparts today as a lack of progress in budget talks boosted demand for haven assets. The yen rose to 84.24 per dollar, and gained to 111.41 per euro. A stronger yen hurts overseas earnings for Japanese exporters when repatriated.

Japanese exporters led declines, with transport and electronic makers the biggest drags among the Topix’s 33 industry groups.

Canon fell 3 percent to 3,350 yen. Honda Motor Co. (7267), an automaker that counts North America as its biggest market, slid 2.1 percent to 3,005 yen.

Monetary Stimulus

The Bank Of Japan will probably increase monetary stimulus after a two-day policy meeting that ends today, 17 of the 21 analysts surveyed by Bloomberg say. The policy board will discuss its inflation target at today’s meeting, the Nikkei newspaper reported without attribution.

Among other stocks that fell today, Capcom tumbled 9.4 percent to 1,338 yen. The video-game company reduced its target for operating profit for this fiscal year by 37 percent to 10 billion yen, citing weakening sales of “Resident Evil 6” and a delayed launch for “Monster Hunter 4.” The stock was cut to equalweight from overweight at Barclays Plc.

Mitsubishi Motors dropped 6.6 percent to 85 yen, the second-biggest decline on the Nikkei 225. The transport ministry said the automaker made “inappropriate decisions” in regards to a series of recalls tied to an oil leak. The company said it will call back eight models, including the Town Box and the Minica minicar, for a total of 1.21 million vehicles in Japan.

Nissan Drops

Nissan Motor Co. slumped 6.8 percent to 787 yen, the biggest drop on the Nikkei 225. The carmaker’s investment rating was cut by Nomura Holdings Inc. on concerns it may miss its profit targets on higher costs and slower sales.

The Topix trades at 0.99 times book value, compared with 2.1 for the S&P 500 and 1.5 for the Europe Stoxx 600 Index. A number less than one means that companies can be bought for less than the value of their assets.

The Nikkei 225’s 14-day relative strength index was at 78.46 today, trading above the 70 level for a seventh day. Some traders use a level above 70 as a sign the market is overbought.

The Nikkei Stock Average Volatility Index (VNKY) climbed 1.5 percent to 19.08, indicating traders expect a swing of about 5.4 percent on the benchmark gauge over the next 30 days.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Adam Haigh in Sydney at ahaigh1@bloomberg.net

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

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