Topix Falls to Lowest in Month as Yen Gains Before Fed

Japan’s Topix index closed at its lowest in a month as investors awaited a two-day Federal Reserve policy meeting starting tomorrow and the yen advanced for a second day against the dollar.

Honda Motor Co., which gets about 80 percent of revenue outside Japan, dropped 2.8 percent. A gauge tracking consumer-finance companies fell the most among the 33 Topix industry groups. Office-equipment provider Askul Corp. tumbled 6.7 percent after profit dropped 70 percent. Tokyo Electric Power Co. rose 1 percent on a report the government plans to double interest-free loans to the utility.

The Topix slid 1.3 percent to 1,222.95 at the close in Tokyo, with all subsectors falling. The Nikkei 225 Stock Average dropped 1.6 percent to 15,152.91. Economists have increased bets the Fed will start reducing stimulus as soon as this week amid improving U.S. economic data. Japan’s Tankan survey of sentiment at large manufacturers rose to its highest since 2007, while a measure of capital expenditure slid.

“Tapering will begin, I believe, in the first quarter, but many are now saying it’s overdue,” said Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong. “The Tankan headline figure reads well. The disappointing side to the data was the Large All Industry Capex. This is more proof that corporates see no evidence of sustainability and they are not showing any signs of ramping up expenditure domestically.”

The Fed will probably start cutting its $85 billion of monthly bond purchases at this week’s meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, up from 17 percent in a Nov. 8 poll. Less stimulus would curb the supply of cheap dollar financing that has spurred demand for higher-yielding assets globally.

Tankan Survey

“Until we get more insight as to whether the Federal Reserve will move toward cutting back on easing, a wait-and-see mood among investors will continue,” said Ryuta Otsuka, a strategist at Toyo Securities Co.

The yen gained for a second day, advancing 0.4 percent to 102.82 per dollar. Expectations of larger swings in major currencies were near a 2 1/2-month high.

Automakers and consumer-electronic manufacturers were the biggest drags on the Topix today. Toyota Motor Corp. slumped 1.9 percent to 6,060 yen. Honda slid 2.8 percent to 4,060 yen. Sony Corp., which gets almost 70 percent of revenue outside Japan, declined 1.1 percent to 1,794 yen.

Manufacturing Sentiment

Japan’s quarterly Tankan index for large manufacturers rose to 16 from 12 in September, a Bank of Japan report showed today. Economists surveyed by Bloomberg expected a reading of 15. A positive number means optimists outnumber pessimists. Big companies plan to boost capital spending by 4.6 percent in the year ending March 2014, compared with a 5.1 percent projection three months earlier, the report showed.

The Topix Other Financing Business index slid 3.2 percent. Orix Corp. dropped 2.9 percent to 1,705 yen. Japan Exchange Group Inc., operator of the country’s biggest bourse, tumbled 5.6 percent to 2,799 yen for its largest decline since August. Credit Saison Co. slipped 3.2 percent to 2,667 yen.

Askul sank 6.7 percent to 3,050 yen, the most since July 4. The office-equipment seller said first-half net income dropped 70 percent from a year earlier to 558 million yen, with operating profit tumbling 60 percent.

Among other stocks that fell, Showa Denko K.K. dropped 5.3 percent to 143 yen for the second-biggest decline on the Nikkei 225. The maker of petrochemical products expects operating profit of 50 billion yen in 2015, it said on Dec. 13. The target looks optimistic, and the price of carbon graphite is projected to drop in Asia and the U.S. while fixed costs are likely to rise, Jefferies Japan Ltd. analyst Yoshihiro Azuma wrote in a report.

Tepco Loans

Among stocks that rose, Tokyo Electric Power climbed 1 percent to 524 yen after jumping as much as 5.2 percent. The Japanese government will double the size of its interest-free lending program to the utility to help pay for the clean-up after the Fukushima Dai-Ichi nuclear accident, the Nikkei newspaper reported, without citing anyone.

The utility’s banks are considering 2 trillion yen in new loans whose repayment will be tied to income from projects Tepco carries out, Bloomberg News reported on Dec. 13, citing three people familiar with the matter.

The Topix rose 42 percent this year, the most among 24 major developed markets tracked by Bloomberg, as Prime Minister Shinzo Abe and the Bank of Japan seek to end 15 years of deflation. The Topix traded at 1.24 times book value today, compared with multiples of 2.55 for the S&P 500 and 1.72 for the Stoxx Europe 600 Index.

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