Japan’s Topix Declines After Tankan as Yen Weighs on Exporters

Japan’s Topix index fell after the Bank of Japan’s Tankan survey showed large manufacturers see business conditions weakening this quarter and most companies plan to pare investment in the year ahead.

Toyota Motor Corp., which gets three-quarters of its sales overseas, slid 1.8 percent as the yen climbed after the Tankan data. Takeda Pharmaceutical Co., which posted a 20 percent jump this year through Tuesday, retreated 2 percent. ABC-Mart Inc. slumped 3.4 percent on a report the shoe retailer’s operating profit for the year ended yesterday was less than analyst forecasts. Dai-Ichi Life Insurance Co. added 2.5 percent after a report it will push companies for higher shareholder returns.

The Topix lost 0.9 percent to 1,528.99 at the close in Tokyo, after rising 9.6 percent in the three months through March, the most since the same period in 2013. The Nikkei 225 Stock Average slid 0.9 percent to 19,034.84 today. The yen strengthened 0.3 percent to 119.80 per dollar.

The Tankan “was quite weak and the outlook remains cautious,” Kenji Ueno, a senior investment manager at Sompo Japan Nipponkoa Asset Management Co. in Tokyo, said by phone. “Stocks have done very well this year, but it seems the actual economy is still not able to surprise us positively.”

The Tankan large manufacturer index in March came in below estimates in March, unchanged at 12 from the previous quarter, the central bank said. The index is forecast to drop to 10 in June. Companies plan to reduce capital expenditure by 1.2 percent in the fiscal year through March 2016, the first forecast for a decline in two years.

Still Wary

“Company managers remain very wary,” said Norihito Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “Given that corporate taxes will be cut this year, expectations were strong for more business spending, so a reading of minus 1.2 percent is unacceptable.”

Japan’s parliament yesterday approved a cut to corporate income tax by 3.29 percentage points, aiming to spur economic growth by encouraging companies to increase investment and raise wages. The changes will reduce the burden on companies by 210 billion yen ($1.8 billion) in each of the next two fiscal years, estimates from the finance ministry show.

Exporters fell as the yen strengthened. Toyota was the biggest drag on the Topix, sliding 1.8 percent to 8,236 yen. Nikon Corp., which gets almost 85 percent of revenue overseas, fell 1.6 percent to 1,585 yen.

Pharmaceutical companies, the best performers this year among the Topix’s industry groups, were among the biggest decliners today. Takeda slumped 2 percent to 5,877 yen, while Santen Pharmaceutical Co. fell 3.1 percent to 1,695 yen.

ABC-Mart retreated 3.4 percent to 6,790 yen. The Nikkei newspaper reported the shoe retailer will post fiscal-year operating profit of 40 billion yen, below the median estimate of analysts surveyed by Bloomberg for 41.4 billion yen. The company is scheduled to announce earnings on April 8.

Corporate Governance

Dai-Ichi Life jumped 2.5 percent to 1,788.5 yen. The Nikkei reported the insurer will push companies it invests in for higher profitability and returns to investors. That includes voting against ineffective outside directors, seeking a 30 percent payout ratio in principle, and asking companies with cash piles to buy back shares.

The Topix briefly pared its drop in afternoon trading after Reuters reported that Kozo Yamamoto, a ruling party lawmaker and adviser on Abenomics, said the Bank of Japan should ease monetary policy at its meeting at the end of April.

“There were probably some short-term investors who traded stocks and currencies on the news,” said Seiichi Miura, a strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “It’s only been six months since we had more easing, so unless there are extraordinary circumstances we probably won’t have more by the end of April.”

E-mini futures on the Standard & Poor’s 500 Index tumbled 0.7 percent after the underlying measure lost 0.9 percent Tuesday in New York, as health-care and industrial companies slid.

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