Japan Stocks Fall, Led by Commodities, on Oil, PM Resignation

By Kanoko Matsuyama and Toshiro Hasegawa

Sept. 2 (Bloomberg) -- Japan's stocks fell a second day, led by commodity-related companies, after oil dropped to the lowest in four months and the resignation of Prime Minister Yasuo Fukuda shook confidence in the government's economic policies.

Inpex Holdings Inc., Japan's biggest oil explorer, dropped 6.7 percent, the most in a month, while rival Japan Petroleum Exploration Co. lost 5.1 percent. Mitsui & Co., which gets more than half its profit from commodities trading, sank 5.4 percent.

Fukuda quit just a month after changing his Cabinet, ending less than a year in office marred by gridlock with the opposition over taxes, security and leadership of the central bank.

The Nikkei 225 Stock Average tumbled 224.71, or 1.8 percent, to 12,609.47 at the close of Tokyo trading, reversing a morning gain and extending yesterday's 1.8 percent decline. The broader Topix index dropped 18.27, or 1.5 percent, to 1,212.37. Almost nine shares retreated for each that gained on the Topix.

``New policies from the last Cabinet reshuffle in August have failed, and we can't emerge from this policy stagnation under the current political split,'' said Hiroshi Arano, who helps oversee $26 billion at Mizuho Asset Management Co. in Tokyo. ``It's clear that investors have been frustrated.''

Oil futures fell as much as 4.2 percent to $110.60 a barrel in New York, the lowest in four months, after Hurricane Gustav made landfall as a weaker-than-expected storm, easing concern of damage to rigs and refineries in the U.S. Gulf Coast.

Power Handover

Fukuda, 72, stepped down yesterday after 11 months in office marked by low approval ratings and conflicts with the opposition party in control of the upper house. He presided over a 23 percent drop in the Nikkei since assuming office on Sept. 26, as the fastest inflation in a decade dented consumer spending and the U.S. mortgage crisis caused a global credit crunch.

Taro Aso, a lawmaker in Fukuda's ruling Liberal Democratic Party, is favored in polls to become the next prime minister.

Inpex fell 76,000 yen to 1.067 million yen, the sharpest drop since Aug. 1 and the biggest loser on the Nikkei. Japan Petroleum Exploration dropped 360 yen to 6,750 yen. Mitsui, Japan's second-largest trading company, lost 103 yen to 1,790 yen. Gauges tracking oil explorers and trading companies were the two- biggest losers among Topix industry groups.

Other commodities also retreated, with a measure of six metals on the London Metal Exchange, including zinc and copper, falling 2.4 percent yesterday, the lowest in two weeks. China shares today declined to a 19-month low.

``The sudden drop in oil prices and the decline in Chinese stocks doesn't bode well for emerging markets,'' said Jun Nishizaki, who oversees the equivalent of $250 million in Japanese equities at Nissay Asset Management Corp. ``Those factors are clouding the earnings picture for the next period.''

Metals, Shipping Lines

Nippon Mining Holdings Inc., Japan's biggest copper producer, dropped 5.1 percent to 558 yen. Toho Zinc Co., Japan's fourth- largest producer of non-ferrous metals, sank 6.2 percent to 332 yen, the sharpest sell-off since Aug. 4.

Nippon Yusen K.K., the nation's largest shipping company by sales, dropped 2.3 percent to 836 yen, while Mitsui O.S.K. Lines Ltd., the No. 2, fell 2.4 percent to 1,238 yen.

The Baltic Dry Index, a measure of shipping costs for commodities, fell a ninth-straight day to a more than six-month low on weakening Chinese demand for iron-ore imports.

Nippon Building Fund Inc. and Japan Real Estate Investment Corp. led a plunge by real estate investment trusts after Credit Suisse Group analyst Masahiro Mochizuki cut both stocks to ``underperform'' from ``neutral,'' citing credit risks.

Nippon Building fell 5 percent to 1.126 million yen, while Japan Real Investment sank 5.1 percent to 980,000 yen. The TSE REIT Index retreated 3.7 percent, the most since April 9.

Nikkei futures expiring in September added 1.5 percent to 12,960 in Osaka and gained 1.5 percent to 12,970 in Singapore.

To contact the reporters for this story: Kanoko Matsuyama in Tokyo at kmatsuyama2@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.