Japan Stocks Drop, Cap Worst Week in a Year on Jobs, Investment

By Masaki Kondo

Sept. 5 (Bloomberg) -- Japan's stocks tumbled, capping the worst weekly slump in a year, as the slowing global economy dragged down U.S. employment and compelled domestic companies to reduce capital spending.

Komatsu Ltd., which gets a fifth of its profit from the Americas, fell 4.4 percent to the lowest in two years after U.S. jobless claims reached a near five-year high and Japanese companies cut investment. Mazda Motor Corp., which gets more than half its profit from Europe, sank 6.9 percent after the European Central Bank cut economic forecasts. Resona Holdings Inc. led a gauge of banks to the lowest in four years after the manager of the world's biggest bond fund warned of a ``financial tsunami.''

The Nikkei 225 Stock Average sank 345.43, or 2.8 percent, to close at 12,212.23 in Tokyo, the biggest drop since April 14. The Topix index fell 30.81, or 2.6 percent, to 1,170.84. The Topix lost 6.7 percent this week, the worst since Aug. 17 last year.

``It's become much clearer to everybody that the U.S. is entering a recession, but it's also quite likely the European economy will slow,'' said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages about $14 billion. ``It's as though we are losing two pillars. Investors are better off holding cash rather than stocks.''

The Nikkei is 3.5 percent away from its March 17 low this year. The gauge has fallen 26 percent in the past 12 months as decade-high inflation damped spending and the global credit crisis caused corporate bankruptcies to reach a five-year high.

The number of people on jobless rolls rose to 3.435 million in the U.S., the highest since November 2003, the Labor Department said yesterday. That coincided with a report by the Japanese Ministry of Finance today that domestic businesses cut investment 7.6 percent last quarter, while profits at non- financial companies fell 5.2 percent.

Nintendo Downgrade

Komatsu, the world's second-biggest maker of earthmoving equipment, dropped 4.4 percent to 1,922 yen and posted a 17 percent weekly drop, the most since October 2000. Mazda dived 6.9 percent to 527 yen. Nintendo Co., the world's largest maker of handheld game players, lost 2.8 percent to 51,800 yen in Osaka trading after Nikko Citigroup Ltd. lowered its rating on the stock to ``hold,'' saying earnings will peak this year.

The ECB yesterday lowered its economic growth projection for 2008 and 2009. Daiwa Securities Group Inc., Japan's second- largest brokerage, cited a slowdown in Europe's economy when cutting its profit forecast for Japanese companies the same day.

`Very Bearish'

Resona, Japan's fourth-biggest publicly traded bank, plunged 7.7 percent to 93,700 yen, the lowest since August 2003. Mizuho Financial Group Inc., the second largest, dropped 6.4 percent to 413,000 yen while bigger rival Mitsubishi UFJ Financial Group Inc. lost 5.4 percent to 750 yen. Banks as a group fell to the lowest since February 2004 and posted the biggest drop among 33 industry groups on the Topix.

Bill Gross, co-chief investment officer of Pacific Investment Management Co., yesterday said the U.S. government needs to start using more of its money to support markets to stem a ``financial tsunami.''

``Credit risks are getting bigger and it's hard to hold on to financial stocks,'' said Tomokatsu Mori, who oversees about $935 million at Fukoku Capital Management Inc. ``We expect the market to remain very weak and the outlook is very bearish.''

Sony Corp., the world's second-biggest maker of consumer electronics, slid 4.2 percent to 3,880 yen, the lowest since November 2005. It yesterday recalled about 440,000 of its Vaio notebook computers, citing a risk they could overheat.

Aiful Corp., Japan's fourth-biggest consumer lender by value, surged 15 percent, the most since Oct. 22, to 755 yen, after JPMorgan Chase & Co. raised its rating on the stock to ``neutral'' from ``underweight.'' The stock had lost 67 percent this year through yesterday amid concern lenders will have to return excess interest payments to customers while creditor banks tighten lending.

``Aiful is likely to increase interest reimbursement provisions,'' Natsumu Tsujino, a Tokyo-based analyst for JPMorgan, wrote in a note to clients today. ``The move would not substantially hurt capital, which is currently sufficient.''

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