Japanese Shares Advance as Yen Slides on Yellen Pick

Japan’s Topix index capped a second day of gains as the yen slid after the White House said it will nominate Janet Yellen to lead the Federal Reserve.

Toyota Motor Corp., Asia’s biggest carmaker, rose 3 percent after falling as much as 0.7 percent. Real-estate shares led gains among the 33 Topix industry groups after Nomura Holdings Inc. maintained its bullish outlook on the sector. SoftBank Corp. tumbled 5.7 percent after the mobile carrier’s rating was cut at Citigroup Inc.

The Topix rose 1.5 percent to 1,166.90 at the close in Tokyo, after falling as much as 1 percent. The Nikkei 225 Stock Average added 1 percent to 14,037.84. President Barack Obama said the U.S. economy risks a deep recession if Congress doesn’t raise the nation’s borrowing limit. Obama will nominate Yellen to succeed Ben S. Bernanke as Fed chairman, a White House official said. The yen weakened 0.5 percent to 97.36 per dollar as investors shifted to higher-yielding assets.

“Investors are still worrying about the debt crisis,” said Andrew Sullivan, director of sales trading at Kim Eng Securities in Hong Kong. “Still, today the key is that there is one less thing for investors to worry about. We now know who is going to replace Bernanke. It’s more about investor sentiment than what the policy is actually going to be. Japan is seeing support because the dollar is gaining.”

Yellen Policy

Futures on the Standard & Poor’s 500 Index gained 0.4 percent. Yellen, the vice chairman of the Fed since 2010, has articulated the case for maintaining highly accommodative monetary policy.

Toyota gained 3 percent to 6,230 yen. Honda Motor Co. (7267), which gets about 80 percent of revenue abroad, gained 1.9 percent to 3,790 yen. Canon Inc., the world’s biggest cameramaker, climbed 1 percent to 3,105 yen.

Still, Yellen’s nomination to lead the Fed raises the odds of prolonged U.S. bond-buying that may strengthen the yen and damage the Japanese economy, said Koichi Hamada, an adviser to Prime Minister Shinzo Abe. If the Fed takes longer to pare stimulus, the yen may gain, hurting Japan’s recovery, Hamada said.

Among other shares that rose, real estate companies jumped as Nomura said any decline in demand for housing due to the increased consumption levy will be short lived and that tax breaks on home loans will underpin demand.

The Topix Real Estate Index jumped 3.7 percent, the most among the 33 industry groups on the broader gauge. Mitsui Fudosan Co. rose 4.3 percent to 3,300 yen while Tokyo Tatemono Co. (8804) advanced 4.1 percent to 899 yen.

Debt Impasse

The S&P 500 (SPX) dropped 1.2 percent yesterday, the biggest decline since August. House Speaker John Boehner insisted on immediate negotiations over the debt ceiling, while Obama said he’ll only talk once the government shutdown is ended and the borrowing limit raised.

The International Monetary Fund cut its global outlook for this year and next as capital outflows further weaken emerging markets, and warned that a U.S. government default could “seriously damage” the world economy. The IMF maintained its growth forecasts for Japan, while saying the central bank should be prepared for another round of monetary stimulus if it doesn’t manage to boost inflation expectations to its 2 percent target.

“The concern about a U.S. default is weighing on stocks, as if that happens, the fear is that we’ll fall into an abyss,” said Hiroichi Nishi, a Tokyo-based equities manager at SMBC Nikko Securities, a unit of Japan’s second-biggest lender. “But if the ceiling is raised, shares are likely to soar and so there is demand for buying at the lower end of the range.”

SoftBank, Yahoo

SoftBank dropped 5.7 percent to 7,000 yen for the biggest drop on the Nikkei 225 and biggest drag on the Topix. Citigroup cut its rating on the stock as the market’s expectations may be too high from the likely benefits from SoftBank’s Sprint Corp. investment.

Yahoo Japan Corp. (4689) retreated for a second day, sinking 3.7 percent to 515 yen, after saying it will eliminate vendor fees for its shopping and auction websites.

Among other stocks that fell, Mizuho Financial Group Inc., Japan’s third-largest bank by market value, dropped 1 percent to 204 yen after saying a former top executive knew it was lending to crime groups.

Wage Expectations

Goldman Sachs Group Inc. said Japanese stocks will extend a world-beating rally as surging corporate earnings result in higher wages, supporting shares that benefit from domestic spending. The Topix (TPX) will climb to 1,250 in three months, a 7.1 percent gain from today’s close, said Kathy Matsui, Tokyo-based chief Japan strategist at the bank.

“The next big catalyst for reflation is when profit growth translates into higher incomes,” Matsui said in an interview in Tokyo on Oct. 7. “We have to wait a little while as wages won’t rise overnight. But at the end of the day, one of the key transmission mechanisms of reflation to households is via higher incomes.”

The Topix traded at 1.22 times book value today, compared with 2.43 for the S&P 500 and 1.72 for the Stoxx Europe 600 Index yesterday. The Japanese gauge’s 30-day historic volatility was at 18.6, compared with its five-year median of 19.32.

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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