Japanese Stocks Retreat on Commodity Prices, Yen; Inpex Drops

Japanese stocks fell as concern China’s interest rate increase will slow growth dragged down commodity prices and after the yen advanced, damping the outlook for export earnings. Trading was the lightest in two years.

Inpex Corp., Japan’s No. 1 oil explorer, retreated 1.7 percent. Mitsubishi Corp., Japan’s largest commodities trader, sank 0.6 percent. Tokyo Electron Ltd., a maker of semiconductor equipment that derives more than 60 percent of its revenue abroad, retreated 1 percent. Mizuho Financial Group Inc., Japan’s third-largest bank by market value, climbed 1.3 percent after its chief executive officer said the lender will exceed capital requirements.

“The market has started to price in further Chinese increases in interest rates, but incremental increases wouldn’t be enough to curb its inflation,” said Hiroshi Fujimoto, a fund manager at Shinkin Asset. Exporters are falling on “concerns profits will drop because of a stronger yen.”

The Nikkei 225 Stock Average dropped 0.6 percent to 10,292.63 at the close in Tokyo. The broader Topix index slid 0.2 percent to 902.83, after rising 0.1 percent. About the same number of stocks retreated as declined. The number of shares traded on the Tokyo Stock Exchange’s first section was 1.08 billion, the fewest since Dec. 30, 2008.

The Topix has lost 0.5 percent in 2010, compared with gains of 13 percent by the S&P 500 and 10 percent by the Stoxx Europe 600 Index. Stocks in the Japanese benchmark are valued at 15.7 times estimated earnings on average, compared with 14.7 times for the S&P 500 and 12.4 times for the Stoxx 600.

China Shares

China increased the key one-year lending and deposit rates by 25 basis points on Dec. 25. It was the second such increase since mid-October.

The Shanghai Composite Index, which tracks the bigger of the country’s stock exchanges fell 1.7 percent today, extending yesterday’s 1.9 percent decline.

“Japanese stocks are falling following declines in Chinese stocks yesterday afternoon,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $104 billion. “If other emerging countries also take monetary tightening measures, that will affect the market psychologically.”

Inpex retreated 1.7 percent to 482,000 yen. Japan Petroleum Exploration Co., the nation’s second-biggest oil driller, dropped 1 percent to 3,075 yen. Mitsubishi sank 0.6 percent to 2,210 yen.

Crude Oil Drops

Crude oil for February delivery fell 0.6 percent to settle at $91 a barrel in New York yesterday. The Thomson Reuters/Jefferies CRB Index, which tracks prices of 19 commodities from copper to corn, dropped 0.1 percent yesterday in New York.

Tokyo Electron retreated 1 percent to 5,170 yen. Honda Motor Co., Japan’s second-largest carmaker, lost 0.7 percent to 3,260 yen. Nissan Motor Co., Japan’s third-biggest automaker by sales, dropped 1.3 percent to 781 yen. Kyocera Corp., an electronics maker that gets more than half of its revenue outside Japan, fell 0.7 percent to 8,360 yen.

The yen appreciated to 82.42 against the dollar from 82.75 when the market opened, the strongest level in intraday trading since Dec. 7. A stronger yen reduces income at Japanese companies when overseas revenue is converted into their home currency.

Banks Advance

Mizuho climbed 1.3 percent to 155 yen and was the biggest support for the Topix. Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, advanced 0.5 percent to 443 yen. Sumitomo Mitsui Financial Group Inc., the second-biggest bank, rose 0.5 percent to 2,914 yen.

Mizuho’s chief executive officer said the bank expects to exceed international capital requirements without additional stock offerings.

Banks also gained after Japan’s factory output climbed 1 percent from October, when it dropped 2 percent, the Trade Ministry said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for a 0.9 percent gain.

Japan’s statistics bureau announced the nation’s unemployment rate was unchanged at 5.1 percent and consumer prices fell 0.5 percent in November.

“It’s important to keep taking appropriate measures to combat deflation in order to attract investment to Japan,” Daiwa Asset Management’s Nagano said.

Advantest Corp., the world’s biggest maker of machines used to test memory chips, slumped 1.6 percent to 1,850 yen on a Nomura Holdings Inc. analyst report.

“Demand for testers used for dynamic random-access memories is stagnant due to falling DRAM prices and production cutbacks by manufacturers,” Tetsuya Wadaki, an analyst at Nomura Holdings, wrote in a Japanese-language report dated yesterday.

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