Nikkei Drops as U.S. Debt Deadline Looms, Yen Slams Exporters

The Nikkei 225 Stock Average fell as a political stalemate ahead of a deadline for raising the U.S. debt ceiling heightened the risk of a default that could roil credit markets and slow the global economy.

Sumitomo Mitsui Financial Group Inc., Japan’s No. 2 bank by market value, fell 1.2 percent. Nissan Motor Co., a carmaker that gets about 80 percent of its revenue overseas, lost 1.9 percent after the dollar weakened against the yen, cutting the earnings outlook for the exporter. Tokyo Electric Power Co. plunged 16 percent after the government said the utility’s stakeholders may be asked to “cooperate” in compensating victims of the disaster at the Fukushima Dai-Ichi nuclear plant.

“Investors right now are very conscious of political uncertainty,” said Junichi Misawa, head of equity investment at Tokyo-based STB Asset Management Co. “The market is more concerned about political risk than about a downturn in the economy.”

The Nikkei 225 fell 0.5 percent to 10,047.19 at the 3 p.m. close in Tokyo. The broader Topix lost 0.8 percent to 859.11. The gauge has slipped 1.7 percent since a post-earthquake high on July 8 as mounting concern U.S. lawmakers will fail to reach an agreement on the debt limit weakened the dollar and hit Japanese exporters.

Quake Recovery

Declines on the gauge have been limited as companies from Canon Inc. to Fanuc Corp. raised earnings forecasts amid a faster-than-expected recovery from Japan’s March 11 quake.

More than 550 of the 1,666 companies listed on the Topix are scheduled to report earnings this week. Of the 129 companies that posted results since July 11, 20 beat estimates while 15 missed, according to Bloomberg data.

The Standard & Poor’s 500 Index retreated 0.4 percent yesterday in New York amid stalled negotiations between Republicans and Democrats over raising the government’s borrowing limit ahead a deadline next week. Without legislation by Aug. 2, the Treasury will be unable to pay its bills, triggering a default that could damage the U.S. economy and the global recovery.

Banks declined on concern ratings companies may cut the U.S.’s AAA debt rating. Sumitomo Mitsui sank 1.2 percent to 2,496 yen. Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, slid 0.7 percent to 403 yen.

U.S., European Debt

The dollar has fallen 3.5 percent against the yen this month as the stalemate in the U.S. congress dragged on. The greenback slid to 77.70 yen today in Tokyo, the lowest level since March 17, on concern the U.S. will default on its debt and face its first downgrade in its top-notch credit rating. A stronger yen hurts Japan’s exporters because it cuts the value of repatriated earnings.

Nissan slumped 1.9 percent to 848 yen. Toyota Motor Corp., the world’s biggest carmaker by market value, fell 1.2 percent to 3,255 yen. Sony Corp., an exporter of consumer electronics that earns about a half of its revenue in the U.S. and Europe, declined 1.4 percent to 2,036 yen.

Tokyo Electric led power companies lower after a bill before parliament said stakeholders in the utility will be asked to “cooperate” in compensating those affected by the nuclear plant disaster. The utility tumbled 16 percent to 431 yen, its biggest drop in seven weeks.

The ambiguity of the bill’s language leaves open the possibility that shareholders may lose their capital and lenders may have to waive some loans, Daiwa Securities Capital Markets Co. analyst Toshiyasu Ohashi said yesterday after a draft of the legislation was released.

Geiger Counters

Among stocks that advanced, S.T. Corp., a maker of air fresheners, surged 15 percent to 1,017 yen, the biggest gainer on the Topix. The company said on its website it will start selling Geiger counters for household use in October.

Japan Tobacco Inc., a cigarette company majority owned by the Japanese government, jumped 4.7 percent to 333,000 yen. The stock advanced for a second-day after Japan’s Vice Finance Minister Fumihiko Igarashi said on July 25 the government may sell shares in the company to help raise money for earthquake reconstruction.

A share buyback by Japan Tobacco could boost earnings per share by as much as 40 percent in the year through March 2012, compared with the company’s forecast, according to a UBS AG report dated yesterday.

Fanuc, the world’s biggest maker of controls that run machine tools, gained 1.2 percent after raising its first-half profit forecast by 11 percent. The company said orders improved and changes to product designs helped it overcome parts shortages following the quake.

Sumitomo Metal Mining Co., Japan’s largest gold producer, advanced 1 percent to 1,408 yen after futures on the precious metal rose to a record. Investors sought the safe-haven of gold to protect their wealth against the possibility of a U.S. default.

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