Japanese Shares Fall on Stronger Yen Amid U.S. Shutdown

Japan's Topix index fell for a fourth day as the yen gained against the dollar amid the U.S. government shutdown and investors weighed Prime Minister Shinzo Abe’s sales-tax increase and stimulus plan.

Honda Motor Co. (7267), which gets about 80 percent of sales abroad, slipped 1.5 percent. Pacific Metals Co., which derives 96 percent of revenue from nickel, dropped 6.2 percent after Bank of America Merrill Lynch cut its outlook for the metal. SoftBank Corp. (9984) advanced 4 percent after Goldman Sachs Group Inc. said new iPhone sales at competitor NTT DoCoMo Inc. (9437) may be more affected by inventory shortages than at other Japanese carriers.

The Topix slid 1.5 percent to 1,175.16 at the close in Tokyo, after rising as much as 0.5 percent. The U.S. government began its first partial shutdown in 17 years yesterday after lawmakers failed to agree on a federal budget. Abe confirmed yesterday Japan would raise the consumption levy and compile a $51 billion stimulus plan to soften its effects. The Nikkei 225 Stock Average sank 2.2 percent today to 14,170.49.

“At the moment, investors think the U.S. shutdown will end soon, but if it drags on it could start to hit economic fundamentals, such as consumption, and that’ll strengthen the yen and have a negative impact on Japan,” said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co., which oversees about $33 billion in assets. “On a Japanese macro level, the stimulus package can cover the increase in the sales tax. However, now that the decisions have been made, I’m concerned we won’t see any further measures from the government to support the economy for some time to come.”

Sales Tax

Abe yesterday announced plans to push ahead with a 3 percentage-point increase in the sales levy to 8 percent next April, the first such increase since 1997. To counter its negative effects, the prime minister also unveiled a 5 trillion yen ($51 billion) program including measures to boost capital investment by smaller companies; spending for the 2020 Olympics; payments to low-income earners; and tax incentives for home purchases. The package matched the median estimate of economists surveyed by Bloomberg News.

The U.S. has begun using the final extraordinary means to avoid breaching the nation’s borrowing limit, Treasury Secretary Jacob J. Lew said yesterday. They will be exhausted no later than Oct. 17, he wrote in a letter addressed to House Speaker John Boehner.

“The progress on policy measures in Japan is positive,” said Hiroichi Nishi, a Tokyo-based equities manager at SMBC Nikko Securities, a unit of Japan’s second-biggest lender. “Abe said he would seriously consider lowering the corporate tax and that’s boosting optimism. But even though U.S. stocks rebounded yesterday, if raising the debt ceiling gets delayed like the budget funding, it’ll be a disaster.”

Partial Shutdown

Futures on the S&P 500 Index slipped 0.3 percent today. The U.S. government began a first partial shutdown yesterday as Republicans and Democrats remained at odds over whether to tie any changes to the 2010 Affordable Care Act to a short-term extension of government funding. As many as 800,000 federal employees were out of work, while some government services were halted.

Closing down parts of the government will cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc., with effects increasing if a prolonged impasse dents consumer and business confidence.

The Institute for Supply Management’s U.S. factory index unexpectedly rose to 56.2 for September, the strongest level since April 2011, and up from from 55.7 in August. Readings above 50 indicate growth. The median forecast in a Bloomberg survey of economists was for 55.

Yen Advances

Japan’s currency advanced 0.5 percent to 97.56 against the greenback today after gaining 0.3 percent yesterday. Consumer electronics shares and automakers were among the biggest drags on the Topix (TPX) today. Honda lost 1.5 percent to 3,715 yen. Toyota Motor Corp. (7203), Asia’s biggest carmaker, slid 1 percent to 6,210 yen. Canon Inc., the world’s biggest camera maker, declined 1.9 percent to 3,055 yen.

Among other stocks that fell, Pacific Metals slumped 6.2 percent to 365 yen, the biggest drop on the Nikkei 225. Merrill Lynch analyst Takashi Enomoto reiterated his underperform rating on the stock after the brokerage reduced its outlook for nickel prices. Mitsui Mining & Smelting Co. lost 1.4 percent to 279 yen. A gauge tracking non-ferrous metal producers sank 3.2 percent, the most among the Topix subsectors.

SoftBank jumped 4 percent to 7,240 yen, the most on the Nikkei 225. The impact of shortages in Japan of popular iPhone models may be greater than expected and may result in a lack of growth in sales of the products, Goldman Sachs analysts Ikuo Matsuhashi and Sen Yao wrote in a report yesterday. NTT DoCoMo, Japan’s No. 1 carrier, faces the biggest shortages among Japan’s big-three carriers, they wrote. The stock slid 1.3 percent to 1,546 yen.

GS Yuasa

Battery-maker GS Yuasa Corp. (6674) jumped 3.9 percent to 611 yen, the second-largest gain on the Nikkei 225. The stock was rated outperform by SMBC Nikko Securities Inc., which set its target price at 750 yen.

The Topix traded at 1.23 times book value today, compared with multiples of 2.49 for the S&P 500 and 1.76 for the Stoxx Europe 600 Index yesterday. The Japanese measure’s 30-day historic volatility was at 18.34 today, compared with its five-year median of 19.35, with volume on the measure 11 percent above its 30-day average.

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

To contact the editor responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net

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