Japan Stocks Drop Most Since May After Yen Strengthens

Japanese shares plunged, with the Nikkei 225 Stock Average falling the most since May, after the yen climbed a second day, outweighing better-than-expected machinery orders.

Canon Inc., a camera maker that gets 80 percent of its revenue outside Japan, slid 4.1 percent. Dai-Ichi Life Insurance Co. declined 2.9 percent from its highest close since May 2011. The measure of price momentum on the broader Topix Index remained above 70, a level some investors use as a sell signal, for a 19th day. That’s the longest streak since 1989. GS Yuasa Corp., a supplier of batteries to Boeing Corp., dropped 4.5 percent after All Nippon Airways Co. grounded its fleet of 787 Dreamliner aircraft.

The Nikkei 225 fell 2.6 percent to close at 10,600.44 in Tokyo, the steepest decline since May 18. The Topix slid 2 percent to 888.11 after yesterday closing at the highest level since March 11, 2011, when a record earthquake and tsunami struck Japan.

“The correction was rapid because the market went up too fast,” said Shoichiro Yamauchi, a senior technical analyst at Nomura Holdings Inc., Japan’s biggest brokerage by market value. “The yen weakened too quickly, making investors adjust their positions.”

Yen Strengthens

The Topix capped the longest weekly advance since 1989 on Jan. 11 after a new government announced a stimulus package. Japan’s broadest measure of equity performance rose 24 percent from Nov. 14, when elections were announced, through Jan. 11. The yen fell 10 percent against the dollar in the period.

The Topix is trading at 1.06 times book value, compared with 2.20 for the Standard & Poor’s 500 Index and 1.59 for the Stoxx Europe 600 Index.

Shares fell as the yen had its biggest two-day climb since May, gaining against all 16 major counterparts. A stronger yen reduces the value of overseas earnings at Japanese exporters.

“The yen’s downtrend is taking a pause and stocks are reacting to it,” said Takahiro Nakano, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s third-largest bank by market value.

Canon slid 4.1 percent to 3,250 yen. Honda Motor Co., Japan’s second-largest carmaker by market value, dropped 3 percent to 3,280 yen.

Overheating Signs

The 25-day Toraku index, which compares the number of advancing and declining shares on the Tokyo Stock Exchange, rose to 158 yesterday. The gauge since Dec. 13 has stayed above 120, a threshold that indicates to some traders that shares will slide.

Dai-Ichi Life fell 2.9 percent to 130,000 yen. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, dropped 2.9 percent to 469 yen after its 14-day relative strength index rose to 78 yesterday.

Stocks fell even as Japan’s machinery orders, an indicator of capital spending, climbed 3.9 percent in November from the previous month, the Cabinet Office said today in Tokyo. The median estimate of 24 economists surveyed by Bloomberg News was for a 0.3 percent increase.

U.S. Stocks

Futures on the S&P 500 fell 0.2 percent today. The gauge yesterday rose 0.1 percent as a rally in retail and transportation companies outweighed concern about raising the U.S. government’s debt ceiling.

China saw its first full-year decline in foreign direct investment since 2009 as economic expansion slowed and factories relocated in search of cheaper labor, according to a government report today.

GS Yuasa dropped 4.5 percent to 321 yen after ANA grounded its Boeing 787 fleet after smoke in one of the planes forced an emergency landing. The carrier dropped 1.6 percent to 182 yen. Japan Airlines Co. also halted all its 787 flights today.

The Nikkei Stock Average Volatility Index slid 2.7 percent to 22.41, indicating traders expect a swing of about 6.4 percent on the benchmark gauge over the next 30 days.

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