Topix Drops Most in Six Weeks on U.S. Shutdown Concerns

Sept. 30 (Bloomberg) -- Japanese shares fell after the yen gained against the dollar amid concern the U.S. government is set for a partial shutdown, paring the Topix index’s biggest four-quarter rally in four decades.

Toyota Motor Corp., Asia’s largest carmaker, lost 2.6 percent. Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, sank 4.1 percent after being penalized for transactions with “anti-social” groups. Nippon Yusen K.K., Japan’s No. 1 shipping line, slid 4.3 percent after a measure of commodity shipping rates dropped the most in 10 months. Industrial-plant operator Chiyoda Corp. gained 2.8 percent after a report it plans to build the world’s first large-scale plant to produce hydrogen for fuel-cell cars.

The Topix lost 1.9 percent to 1,194.10 at the close in Tokyo, its biggest decline since Aug. 20. The gauge added 5.3 percent in the past three months, bringing its four-quarter gain to 62 percent, the steepest rally since the period ended March 1973. The Nikkei 225 Stock Average sank 2.1 percent to 14,455.80 as the yen touched a one-month high against the greenback.

“The fear of a U.S. government shutdown is leading to a weaker dollar, stronger yen, and therefore it’s dragging on Japanese exporters,” said Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong. “Investors are looking for a safe-haven play as there’s a lack of confidence in the U.S. economy and government and because we don’t know how long the shutdown will last.”

The Topix advanced 8 percent in September, its first monthly rise since April.

Futures on the Standard & Poor’s 500 Index dropped 0.7 percent. The gauge lost 0.4 percent on Sept. 27 as concern grew that the budget impasse will hurt economic growth in the world’s largest economy. Congress is leaving itself just one day to end a stalemate that raises the risk of the first government shutdown in 17 years.

‘Political Posturing’

The House of Representatives voted 231-192 yesterday to stop many of the Affordable Care Act’s central provisions for one year, tying it to an extension of U.S. government funding through Dec. 15. Should the Senate reject the bill today the government could be partially closed down from tomorrow.

“The budget and debt-ceiling impasse has descended into political posturing,” said Toshiyuki Kanayama, a senior market analyst at Monex Securities Inc. “They need to strike some kind of agreement, but you just don’t know how it’s going to play out. Investors are concerned a U.S. government shutdown may hurt the economy, so they’re becoming more risk averse.”

Yen, Exporters

The yen touched 97.53 per dollar today, its highest level since Aug. 29. Automakers and electronics manufacturers were among the top three drags on the Topix index.

Toyota sank 2.6 percent to 6,270 yen, the biggest single contributor to the Topix’s decline. Honda Motor Co., which gets more than 80 percent of sales outside Japan, slumped 2.7 percent to 3,735 yen. Canon Inc., the world’s biggest camera maker, declined 1.3 percent to 3,130 yen.

Banks contributed the second-most to the Topix’s decline today. Mizuho dropped 4.1 percent to 213 yen, its biggest fall since June 3. The lender was ordered to strengthen legal compliance and administrative controls, the Financial Services Agency said in a statement in Tokyo yesterday, after failing to take steps to end more than two years of transactions with “anti-social” groups, a phrase often used to describe criminal organizations.

Shippers Drop

Shippers slumped, with the Topix Marine Transportation Index losing 3.9 percent, the most since July 29. Nippon Yusen lost 4.3 percent to 310 yen, the most since May 27. Mitsui O.S.K., Japan’s No. 2 line, dropped 4.1 percent to 443 yen and Kawasaki Kisen Kaisha Ltd. slid 2.5 percent to 230 yen.

The Baltic Dry Index declined 3.2 percent on Sept. 27, falling for a second day after rising for nine straight days to its highest since Oct. 2011.

In another drag on shares, data today showed Japanese industrial production fell 0.7 percent on the month in August, worse than the 0.3 percent decline forecast by economists surveyed by Bloomberg. Output fell 0.2 percent on the year, compared with an expected 0.5 percent gain. Retail sales rose 0.9 percent in August from July, according to the trade ministry, less than the median estimate for a 1 percent gain.

The figures come ahead of a speech tomorrow by Japanese Prime Minister Shinzo Abe in which he may announce a 3 percentage point increase in the consumption tax and a stimulus plan to counter its effects.

Tax Decision

“Japanese data today is a secondary thing,” Vantage Capital’s Beavis said. “Industrial production is certainly weaker, but nothing to worry about short term. The tax decision from Abe and Tankan tomorrow are more important.”

The government will assemble a 5 trillion yen ($51 billion) package to help counter the impact of the higher consumption duties, according to the median estimate of economists surveyed by Bloomberg News. Items likely to be included are bigger tax rebates for companies boosting wages, incentives for capital spending, cash payments to homebuyers and infrastructure investment for the Tokyo 2020 Olympics, according to Deutsche Securities Inc. analysts in Tokyo.

A report tomorrow may show the quarterly Tankan index of sentiment at large manufacturers increased to plus seven in July, from plus four the prior month, according to a survey of 30 economists by Bloomberg News. The measure turned positive for the first time since September 2011 in June.

NISA Program

Also tomorrow, applications open for the Nippon Individual Savings Account program, which will allow individuals to buy 1 million yen a year of risk assets that are exempt from taxes on dividends and capital gains for five years. The plan will draw as much as 68 trillion yen through 2018, with 65 percent of users pulling money out of bank deposits to purchase securities, estimates from Nomura Research Institute show.

Among shares that rose, Chiyoda, the sole proprietor of technology used to turn hydrogen into a stable liquid using toluene, gained 2.8 percent to 1,180 yen, the biggest advance on the Nikkei 225. The company will invest as much as 30 billion yen to construct the world’s first large-scale production base for hydrogen used in fuel cell cars, the Nikkei newspaper reported, without citing anyone.

Tokyo Electric Power Co., the operator of the stricken Fukushima nuclear power plant, gained 2.4 percent to 611 yen. The utility can return to an operating profit this year even without restarting its Kashiwazaki Kariwa nuclear plant or increasing rates, the Asahi newspaper reported today, citing an interview with President Naomi Hirose. Separately, the government is likely to allow the station to be restarted should it meet the safety requirements, the Sankei newspaper reported, without saying where it got the information.

The Topix traded at 1.25 times book value today, compared with multiples of 2.49 for the S&P 500 and 1.75 for the Stoxx Europe 600 Index on Sept. 27. The Japanese measure’s 30-day historic volatility was at 18.92 today, compared with its five-year median of 19.38.

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