Japanese Shares Retreat as Insurers, Tiremakers Drop

Japanese shares fell, with the Topix index paring its weekly gain, as insurers and tiremakers led losses among the gauge’s subsectors while shippers advanced.

The Topix Insurance Index slipped 1.8 percent after two days of gains. Bridgestone Corp. paced declines among tiremakers after Goldman Sachs Group Inc. called the company’s medium-term business plan “lackluster.” JFE Holdings Inc. sank 2.8 percent after Credit Suisse Group AG cut its outlook on the steelmaker. Nippon Yusen K.K. climbed 2.2 percent as shipping lines rose the most among the Topix’s 33 industry groups.

The Topix slid 0.1 percent to 1,205.52 at the close of trading in Tokyo, trimming its advance for the week to 0.7 percent. The measure climbed 2.9 percent last week. The Nikkei 225 Stock Average decreased 0.2 percent to 14,561.54. The yen gained 0.9 percent against the dollar yesterday on signals the Federal Reserve may delay tapering of asset purchases after the government shutdown and debt impasse.

“Now that the possibility of the U.S. tapering stimulus at a rapid pace has diminished, optimism has gone that Japanese earnings will be revised up substantially on a weaker yen,” said Fumio Matsumoto, who helps oversee Japanese equity investment at T&D Asset Management Co. “However, earnings are still likely to increase somewhat this quarter, so investors aren’t going to be aggressively selling shares before results come out.”

After falling from Oct. 1 after Japan said it would raise the sales tax in April and the U.S government shutdown began, the Topix has now recovered and is about 1 percent higher for the month. The gauge remains 5.5 percent lower than its almost five-year high on May 22, as investors speculate when the U.S. will cut stimulus and await promised reforms in Japan.

Tapering Delay

Futures on the Standard & Poor’s 500 Index increased 0.2 percent. The measure rose to a record yesterday after President Barack Obama signed a bill to fund the government through Jan. 15 and extend borrowing authority until Feb. 7. Investors will now weigh the shutdown’s effects on corporate earnings and economic growth as the impasse fueled bets the Fed will delay reducing its $85 billion in monthly bond purchases.

“Fed tapering can work both for and against Japanese stocks,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd. “On one hand, global financial markets may become stormy and that’s going to hurt Japanese shares, but on the other, it’ll lead to a weaker yen, which is positive. The key is the pace of the tapering -- if it’s slow it’s good for Japan, but too fast and the negative effect is bigger.”

Labor Reforms

Also weighing on Japanese share gains are reports Prime Minister Shinzo Abe may put off some labor reforms. Lifting restrictions on working hours for white-collar workers will not go ahead, the Nikkei newspaper reported. The government is likely to postpone easing of rules for firing employees in special strategic zones, according to Kyodo News. By contrast, fixed-term employment contracts may be extended to 10 years from the previous five within the zones, the Nikkei said today.

“Investors had high hopes for employment deregulation in the special zones,” Resona’s Kurose said. “It was meant to be the catalyst for the next part of Abe’s growth strategy. Now that it’s being reported that there will hardly be any loosening of regulations, that’s a big negative for Japanese stocks.”

A gauge tracking insurers fell the most among the Topix industry groups today, paring its 4.9 percent advance over the previous two days. Sony Financial Holdings Inc. led declines, losing 2.1 percent to 1,787 yen. Tokio Marine Holdings Inc., Japan’s biggest insurance company by market value, dropped 1.7 percent to 3,195 yen. MS&AD Insurance Group Holdings Inc., the No. 2, slid 2 percent to 2,547 yen.

Bridgestone Retreats

Bridgestone slid 1.5 percent to 3,515 yen, as tiremakers posted the second-biggest drop among the Topix subsectors. The company didn’t give specific measures to improve margins, Goldman Sachs analysts led by Kota Yuzawa wrote in a note to clients dated yesterday.

“We expect margins to level off due to slowing demand and stiffer competition,” they said, citing increasing competition from Chinese tiremakers.

JFE Holdings, Japan’s second-biggest steelmaker, slumped 2.8 percent to 2,474 yen. Credit Suisse reduced its rating on the stock to neutral from outperform, saying the company may lack the ability to raise prices, which may damp earnings.

China’s gross domestic product expanded 7.8 percent in the third quarter from a year earlier, the National Bureau of Statistics said in Beijing today, matching economists’ estimates. Other data showed industrial production rose 10.2 percent in September from a year earlier, while retail sales climbed 13.3 percent.

Shippers Rise

Among stocks that rose, a Topix gauge tracking shippers gained 1.8 percent. Nippon Yusen, the sector’s biggest company, added 2.2 percent to 331 yen. Mitsui O.S.K. Lines Ltd., the No. 2, increased 1.6 percent to 455 yen. Kawasaki Kisen Kaisha Ltd. rose 0.9 percent to 236 yen.

Daikin Industries Ltd. jumped 4 percent to 5,690 yen. Jefferies Group LLC initiated coverage on the air-conditioner maker with a buy rating.

The Topix traded at 1.26 times book value today, compared with 2.54 for the S&P 500 and 1.77 for the Stoxx Europe 600 Index. Volume on the Japanese gauge was 26 percent below its 30-day average today. Its 30-day historic volatility was at 16.07 today, compared with its five-year median of 19.30.

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