Goldman Cuts Japan Stocks Target on Wider Profit Drop

By Masaki Kondo

Aug. 26 (Bloomberg) -- Goldman Sachs Group Inc. cut its 12- month estimate for Japan's Topix stock index by 6.7 percent, predicting a wider decline in Japanese corporate earnings this business year.

Goldman strategists including Kathy Matsui cut their estimate for the Topix in the next 12 months to 1,400 from 1,500 in a report dated yesterday. Companies on the Tokyo Stock Exchange main board may report an 11 percent drop in recurring profit in the year to March 2009, more than a previous estimate for a 5.1 percent reduction as the global economy will ``continue to moderate'' and oil prices will rebound this year, Goldman said.

Large Japanese companies estimated annual profit will retreat 7 percent this year, according to the Bank of Japan's Tankan survey. Almost three times as many Japanese companies reporting first-quarter results cut their annual earnings targets as those that raised forecasts, according to data compiled by Shinko Research Institute Co.

``There are more downward revisions to come, and that is likely to weigh on stock prices over the next few months,'' the Goldman strategists wrote in the report. The second-half recovery is ``likely to be less robust than companies currently expect.''

The Topix closed today's morning session at 1,218.04, a decline of 17 percent on the year.

Second-half earnings may gain 5.3 percent after an 18 percent drop in the first half, the Tankan survey indicated on July 1.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net