July 29 (Bloomberg) -- Japan shares fell, with the Topix index capping the biggest two-day loss in two months, as exporters slumped on a stronger yen and Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. sparked banks’ biggest back-to-back retreat since May.
Carmakers were the biggest drag on the Topix. Nissan Motor Co., which gets 34 percent of sales in North America, sank 5 percent as the yen gained. Mitsubishi Motors Corp. plunged 9.9 percent as the automaker’s 1-for-10 reverse stock split became effective today. A gauge tracking banking shares dropped 3.4 percent after falling 4.1 percent on July 26, its biggest two-day loss since May 24. Mitsubishi UFJ, Japan’s largest lender, tumbled 4 percent.
The Topix decreased 3.3 percent to 1,128.45 at the close in Tokyo, with all 33 subsectors falling. The gauge slid 3.7 percent last week, snapping a five-week advance. Earnings season for Topix companies peaks this week. The Nikkei 225 Stock Average dropped 3.3 percent to 13,661.13.
“The yen’s rise is weighing on Japanese shares as they are increasingly sensitive to the currency’s move,” said Masaaki Yamaguchi, an equity market strategist at Nomura Holdings Inc., Japan’s biggest brokerage by value. On earnings, “very few companies will upgrade their outlook just three months into the fiscal year.”
About 690 companies listed on the Topix are scheduled to announce results this week. Of the 46 companies on the gauge that have posted quarterly results and for which Bloomberg has estimates, 59 percent beat projections, according to data compiled by Bloomberg.
The Topix has climbed 31 percent this year amid optimism Prime Minister Shinzo Abe will push through reforms while the Bank of Japan continues record stimulus to beat deflation. The premier wants a second opinion on the economic impact of a planned sales-tax increase, the Nikkei newspaper reported on July 26, citing people familiar with the matter.
The tax rise “won’t give major damage to growth,” BOJ Governor Haruhiko Kuroda said in a speech today in Tokyo. A downturn in overseas economies is the largest risk factor for the economy and prices, he said.
“Japan is in a summer lull,” Jesper Koll, head of Japan strategy at JPMorgan Chase & Co. in Tokyo, said on Bloomberg Television. “Parliament will only reopen in the middle of September. Between now and then, there’s no new initiatives coming. coming. There’s a lot of worry about the slowdown in China plus the possible tapering of stimulus in the U.S.”
Net income at Chinese industrial companies increased 6.3 percent in June from a year earlier, the Beijing-based National Bureau of Statistics said July 27, down from a 15.5 percent pace in May. Komatsu Ltd., a machinery manufacturer that gets 8 percent of sales from the country, fell 3.7 percent to 2,163 yen. The company reported after the close that first-quarter operating profit dropped 5.9 percent, missing estimates.
Futures on the Standard and Poor’s 500 Index slid 0.2 percent today. The measure gained 0.1 percent in New York on July 26 as investors weighed corporate earnings and economic data before the Federal Reserve meets from July 30 to 31. The Fed has said the economy’s performance will determine the timing and pace of any reduction in its bond-buying.
Exporters fell as the yen rose to a one-month high against the dollar, cutting their earnings prospects. Nissan, which said a one-yen gain against the dollar cuts operating income by 15 billion yen ($153 billion), sank 5 percent to 1,042 yen. Toyota Motor Corp., the world’s biggest carmaker, was the biggest drag on the Topix, declining 4.1 percent to 5,900 yen. Mitsubishi Motors plummeted 9.9 percent to 1,324 yen, the largest decline on the Nikkei 225.
Banks were the second-largest contributors to the Topix’s fall. Mitsubishi UFJ sank 4 percent to 603 yen. Sumitomo Mitsui Financial, Japan’s No. 2 lender, lost 2.9 percent to 4,465 yen. The bank reported after the close that profit more than doubled, beating analyst estimates. Shinsei Bank Ltd. slumped 6.4 percent to 219 yen, the biggest drop since June 3.
Among other stocks that fell, Tokyo Electric Power Co., Japan’s biggest utility by generation capacity, plunged 9.8 percent to 568 yen after finding a high concentration of cesium 137 in water at its Fukushima Dai-Ichi plant.
JFE Holdings Inc., Japan’s second-biggest steelmaker by market value, dropped 6 percent to 2,222 yen. It lost 8.3 percent on July 26 after declining to provide a full-year net income forecast, citing difficulty in reaching a rational estimate.
In another drag on shares, retail sales for June fell 0.2 percent from the previous month, the Trade Ministry said today in Tokyo. The median estimate of 11 economists surveyed by Bloomberg was for a 0.8 percent increase. A Topix gauge tracking retailers fell 2.5 percent.
Among stocks that rose, GungHo Online Entertainment Inc. surged 8.2 percent to 106,000 yen on the JASDAQ market after the Nikkei newspaper reported on July 27 that the developer of Internet games aims to distribute its “Puzzles and Dragons” title in the U.K. and Australia by the end of the year.
The Topix traded at 1.21 times book value today, compared with 2.49 for the S&P 500 and 1.69 for the Stoxx Europe 600 Index yesterday. The Japanese gauge’s 30-day historic volatility was at 24.52, down 43 percent from a July 2 high of 43.21.
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