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Japanese Stocks Decline Amid Political Turmoil, Weakening Euro

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The MSCI Asia Pacific Index fell 0.5 percent to 112.94 as of 12 p.m. in Tokyo, and Standard & Poor’s 500 Index futures lost 0.6 percent. Photographer: Haruyoshi Yamaguchi/Bloomberg

June 1 (Bloomberg) -- Japanese stocks declined, dragging the Nikkei 225 Stock Average lower for the first time in five days, amid concerns over Prime Minister Yukio Hatoyama’s future.

Konica Minolta Holdings Inc., which counts Europe as its biggest market, slid 2.9 percent as the euro weakened. Toyota Boshoku Corp. tumbled 5.4 percent after JPMorgan Chase & Co. downgraded the car-parts maker. Hitachi Ltd. fell 3.5 percent after the Financial Times cited the company’s president as saying that business had been affected by the European debt crisis. Tokyo Electric Power Co. jumped 4.3 percent after Goldman Sachs Group Inc. upgraded the stock.

“Political instability will hinder Japan’s ability to react to a crisis in these turbulent times,” said Hiroshi Morikawa, a strategist at MU Investments Co., which manages the equivalent of $14 billion in Tokyo. “People are becoming aware of slowing momentum in the global economy.”

The Nikkei 225 Stock Average lost 0.6 percent to 9,711.83 at the 3 p.m. market close in Tokyo, falling for the first time in five days. The broader Topix index slid 0.1 percent to 880.04 with eight stocks falling for every seven that rose. Trading on the Tokyo Stock Exchange’s first section totaled 1.63 billion shares, the lowest since March 10.

The Topix has declined 3 percent in 2010, compared with drops of 2.3 percent by the Standard & Poor’s 500 Index and 3.5 percent by the Stoxx Europe 600 Index. Stocks in the Japanese gauge are valued at 17 times estimated earnings, compared with 13.4 times for the S&P and 11.4 times for the Stoxx.

Approval Rating

U.S. markets were shut yesterday for a holiday. Futures on the S&P 500 fell 0.9 percent today. The Stoxx Europe 600 rose 0.4 percent yesterday, as Federal Reserve Bank of Chicago President Charles Evans indicated the region’s debt crisis may prompt the U.S. central bank to delay raising interest rates.

Stocks fell after Prime Minister Hatoyama said he will discuss his future with Ichiro Ozawa, secretary-general of the ruling party, as the government’s approval ratings slump. Appropriate action will be taken in the interests of the ruling coalition, Hatoyama told reporters in Tokyo today.

Three polls released on May 30 showed the prime minister’s approval rating at or below 20 percent and six in 10 voters think he should quit.

The Social Democratic Party left the government on May 30 after Hatoyama fired leader Mizuho Fukushima from the Cabinet for refusing to endorse his agreement with the U.S. to relocate a Marine base within Okinawa. The departure cuts the ruling coalition’s majority in the upper house ahead of July elections for half the chamber’s seats.

Policy Decisions

“The political issue is currently the only domestic factor that weighs on Japanese stocks,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management in Tokyo, which manages about $7.7 billion. “There’s concern it will take even longer to make policy decisions if the Democratic Party loses in the upper house election. That should be negative for stocks.”

Konica Minolta, a maker of film used in liquid-crystal displays, slid 2.9 percent to 993 yen. Sony Corp., an electronics maker that gets about 23 percent of sales from Europe, slumped 1 percent to 2,788 yen. Olympus Corp., an endoscope maker that gets 21 percent of its revenue in Europe, sank 1.6 percent to 2,337 yen.

Exporters fell as the euro weakened against most of its major counterparts, extending its longest monthly decline against the dollar in 10 years, on concern Europe’s efforts to reduce budget deficits will derail the region’s recovery.

‘Still Anxious’

The yen appreciated to 110.68, compared with 112.60 against the euro at the close of stock trading in Tokyo yesterday. Against the dollar, Japan’s currency strengthened to as much as 90.89 from 91.52. The stronger yen reduces income when overseas revenue is converted into local currency.

“Investors are still anxious about sovereign risks in Europe,” said Kenji Sekiguchi, general manager of strategic research and investment at Mitsubishi UFJ Asset Management Co., which oversees about $73 billion in assets. “They worry that budget tightening will cause a double dip in the economy.”

Stocks tumbled at the market open after Deutsche Bank AG sent some erroneous sell orders for Japan’s Nikkei 225 Stock Average futures contracts. The orders resulted from a system malfunction, said Aston Bridgman, a Deutsche Bank spokesman.

“The erroneous orders hurt market sentiment,” said Yoshifumi Kikuchi, head of the dealing division at Tokyo-based Nissan Century Securities Co.

Europe Problems

Toyota Boshoku tumbled 5.4 percent to 1,416 yen, the steepest slide since Feb. 4. Investment rating on the affiliate of Toyota Motor Corp. was lowered to “neutral” from “overweight” by Kohei Takahashi, an analyst at JPMorgan Chase & Co. Takahashi cut the 12-month share price estimate to 1,600 yen from 1,900 yen.

Hitachi fell 3.5 percent to 359 yen, the fourth-largest drop in the Nikkei. President Hiroaki Nakanishi said the “financial confusion in Europe is affecting various parts of our business,” the Financial Times reported, citing an interview. Nakanishi said that financing problems were delaying a deal to supply U.K. railway rolling stock and the company’s coal-fired power station projects in Europe, the FT said.

Utilities had the biggest gain among the 33 industry groups in the Topix after Goldman Sachs Group Inc. analyst Hiroyuki Sakaida raised his ratings, citing dividend yields.

Tokyo Electric Power, which was increased to “buy” from “neutral,” jumped 4.3 percent to 2,353 yen, rising the most since November 2008. Chugoku Electric Power Co. rose 1.5 percent to 1,746 yen and Shikoku Electric Power Co. climbed 1.5 percent to 2,439 yen on upgrades to “neutral” from “sell.”

Banks Gain

Bank stocks advanced as some investors bet the stocks are cheap relative to earnings prospects. The country’s three largest banks are valued at less than 1 times book value, compared with the Topix’s 1.1 times.

Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, advanced 1.1 percent to 446 yen. Sumitomo Mitsui Financial Group Inc., second-largest, gained 1.2 percent to 2,734 yen. Mizuho Financial Group Inc., No. 3, increased 0.6 percent to 165 yen.

“People expect corporate earnings will recover gradually and many of the banks look relatively cheap in terms of valuations,” said Takero Inaizumi, head of equities at Mizuho Investors Securities Co.

To contact the reporters for this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.

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