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Japan’s Topix Falls on U.S. Shutdown as Abe Raises Tax

Japan’s Topix index fell on a partial shutdown of the U.S. government. Losses were limited as the Tankan survey of large manufacturers beat estimates and Prime Minister Shinzo Abe confirmed a plan to lift the sales tax.

Sharp Corp., a TV maker that gets about 60 percent of revenue abroad, slid 1.7 percent as the yen gained against the dollar. Tokyo Electric Power Co. dropped 4.1 percent after a report about four tons of radiated water may have leaked at its stricken Fukushima Dai-Ichi nuclear plant. Ube Industries Ltd. jumped 6 percent as Citigroup Inc. said the chemical maker’s cuts to forecasts were within expectations.

The Topix closed less than 0.1 percent lower at 1,193.44, after earlier rising as much as 0.9 percent. The U.S. government began a partial shutdown today after lawmakers failed to break a partisan deadlock. In Japan, data showed confidence among the country’s big manufacturers rose to the highest level since 2007, while Abe said he would proceed with the first sales-levy increase since 1997.

“The U.S. shutdown is unlikely to last for a long time, and they are bound to reach a compromise, so the effect on markets shouldn’t be too negative,” said Akio Yoshino, chief economist in Tokyo at Amundi Japan Ltd., which oversees about 3.3 trillion yen ($34 billion). “With Japan raising the sales tax, an uncertainty has been removed. Visibility has been improved and that’s positive for the stock market.”

Futures on the Standard & Poor’s 500 Index climbed 0.4 percent. The measure yesterday fell 0.6 percent.

U.S. Shutdown

The U.S. government began a partial shutdown today, putting as many as 800,000 federal employees out of work, closing national parks and halting some public services. No further negotiations were immediately planned, raising concerns among some lawmakers that the shutdown could bleed into a fight economists consider even more consequential: how to raise the nation’s debt limit to avoid a first-ever default after Oct. 17.

“I don’t think the deadlock will last more than 10 days,” said Amundi’s Yoshino. “They have to come to an agreement before the debt ceiling deadline. If the shutdown is for 10 days, I don’t see the effects on the markets being too negative.”

The yen gained as much as 0.4 percent to touch 97.87 per dollar, after earlier falling to as little as 98.73.

Sharp, which had climbed as much as 1.1 percent, reversed gains and fell 1.7 percent to 354 yen. Canon Inc., the world’s biggest camera maker, slid 0.5 percent to 3,115 yen. Toyota Motor Corp., Asia’s biggest carmaker, pared gains of as much as 1 percent to close unchanged at 6,270 yen.

Tepco, Tankan

Among other shares that fell, Tokyo Electric Power, known as Tepco, slid 4.1 percent to 586 yen, the biggest drop on the Nikkei 225. About four tons of rainwater which leaked during a transfer of radioactive water at Tepco’s Fukushima nuclear plant may be contaminated, Reuters reported, citing the utility. Tepco confirmed after markets closed that rainwater had overflowed and said it was testing the radiation levels.

Shares earlier gained after data showed the quarterly Tankan index of sentiment at big manufacturers jumped to 12 in September from 4 in June, the Bank of Japan said in Tokyo today, exceeding the reading of 7 expected by economists surveyed by Bloomberg News.

Prime Minister Abe gives a speech at 6 p.m. local time in which he may announce a stimulus plan to counter the effects of the sales tax increase. The levy will rise to 8 percent from 5 percent, Abe said in Tokyo today.

Stimulus Package

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 home buyers and infrastructure investment for the Tokyo 2020 Olympics, according to Deutsche Securities Inc. analysts in Tokyo.

“If Abe is able to craft a package tonight to tap into corporate cash on balance sheets, then hang on to your hats as cash-equity markets will be the flavor of the month yet again globally,” said Gavin Parry, managing director of Hong Kong-based brokerage Parry International Trading Ltd. “Within the next two to three weeks, once the U.S. fiscal issues are in the rear-view mirror, look for yen weakness to be back on the table as another spurring factor for a cash equity rally.”

Ube Industries, which sells nylon resins, synthetic rubbers and fine chemicals, jumped 6 percent to 196 yen, the most on the Nikkei 225. The company reduced its profit outlook by 14 percent to 12.5 billion yen while also lowering its operating-profit forecasts by 24 percent to 26 billion yen for the year ending March 2014. The cuts are within expectations, Citigroup analyst Takao Kanai wrote in a report dated yesterday.

The Topix traded at 1.25 times book value today, compared with multiples of 2.47 for the S&P 500 and 1.74 for the Stoxx Europe 600 Index yesterday. The Japanese measure’s 30-day historic volatility was at 18.89 today, compared with its five-year median of 19.37.

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