Japan Shares Decline as Abe Growth Strategy Disappoints

Japanese shares declined, with the Topix index deepening its correction, after Prime Minister Shinzo Abe’s speech on the country’s growth strategy disappointed investors and the yen strengthened.

Exporters such as Toyota Motor Corp. (7203) and Sony Corp. fell. Financial shares including brokerages, insurers and banks dropped. Tokyo Electric Power Co., also known as Tepco, led utilities lower after Abe failed to mention restarting the nation’s nuclear plants. Dentsu Inc., which has exclusive Asian broadcast rights for the 2014 World Cup, jumped 2.5 percent as Japan became the first team to qualify for the soccer tournament.

The Topix fell 3.2 percent to 1,090.03 at the close of trading in Tokyo, after initially rising as much as 1.2 in the afternoon session when Abe started his speech. The Nikkei 225 Stock Average lost 3.8 percent to 13,014.87, with volume 5.7 percent below the 30-day average. The yen gained to 99.59 per dollar after weakening to as much as 100.46 earlier.

“We’re going to have to reduce our expectations for Abenomics,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd., which has the equivalent of $325 billion in assets. “The initiatives are too small. The direction is right but the comments are all long-term. It looks like things are going to move too slowly.”

Abe’s speech outlined his growth strategy, the “third arrow” of an economic revival plan that seeks to build on his first two arrows, fiscal and monetary stimulus.

Third Arrow

The prime minister said he will use all means to promote private-sector investment and remove all barriers to corporate activity. He also vowed to open up the energy, health and infrastructure sectors, while doubling foreign investment to Japan to 35 trillion yen ($350 billion) by 2020.

Stocks slid as Abe said the growth effort won’t begin for months. The timing may suggest he’s putting off taking on vested interests until after next month’s election for the upper house of parliament, and will leave the onus on the central bank to boost growth for now.

Japanese shares have rallied almost 30 percent this year to become the world’s best-performing major market, after the first two stages of Abe’s policies were greeted positively by investors.

Stocks entered a correction on May 30 from the biggest rally in a quarter century. The Topix (TPX) has fallen 15 percent from its high on May 22. The gauge has dropped more than 3 percent on five of the 10 trading days since.

Topix Forecasts

The Topix will reach 1,231 at the end of the year, according to the average forecast of 17 strategists surveyed by Bloomberg News last month. That’s a gain of 13 percent from today’s close.

All but one of the 33 industry groups on the Topix fell today, with about four shares dropping for each that rose. Declines were led by utilities, brokerages, consumer lenders and insurers, while exporters were the biggest drag.

The Topix, Japan’s broadest equity measure, had an intraday trading range of 4.4 percent today and has swung by an average of 4 percent daily since May 23.

Nomura tumbled 7.6 percent to 719 yen, erasing yesterday’s gains of nearly the same amount. Acom Co. (8572), Japan’s biggest consumer lender by market value, fell 8.2 percent to 3,540 yen.

Toyota, Honda Motor Co. and Nissan Motor Co., which each get more than 70 percent of revenue abroad, fell more than 2.5 percent as the yen rose to its highest since May 8.

Tepco Tumbles

Tepco tumbled 16 percent to 513 yen, leading a decline by power producers after Abe’s speech excluded any reference to when Japan may restart nuclear reactors idled after the March 2011 disaster. Abe also said he would also liberalize power generation and distribution, which may include spinning off distribution networks, a step toward ending the power companies’ monopolies.

“The comments fell short of expectations,” said Gavin Parry, the managing director of Hong Kong-based brokerage Parry International Trading Ltd. “We need to wait for substance and implementation.”

Among shares that advanced, Dentsu jumped 2.5 percent to 3,290 yen. Japan’s largest advertising agency has exclusive Asian broadcast rights to all the games of the World Cup in 2014. Japan yesterday became the first team to qualify for the soccer tournament, after drawing 1-1 with Australia.

Shares on the Topix trade at 1.16 times book value, compared with 2.4 percent for the Standard & Poor’s 500 Index and 1.65 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Futures on the S&P 500 declined 0.3 percent today. The gauge dropped 0.6 percent yesterday in New York as economists predicted the U.S. central bank may curtail stimulus as soon as September amid signs of growth. A report from ADP Research Institute today is expected to show U.S. employers accelerated hiring in May.

To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

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

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