Japan Stocks Drop on Slowing Economy, Yen Surge; Mazda Slumps

By Masaki Kondo

Oct. 23 (Bloomberg) -- Japan stocks tumbled a second day as the slowing global economy dragged on export growth, and the yen jumped to a six-year high against the euro.

Mazda Motor Corp. fell to a five-year low after Japan's exports rose a third of what was projected for last month. Olympus Corp., an endoscope maker that counts Europe as its biggest overseas market, sank 11 percent as the euro's slide diminished overseas sales. Inpex Corp., Japan's largest oil explorer, lost 7.1 percent after crude sank to a 16-month low. Tokyo Electric Power Co. added 2.6 percent as investors flocked to companies deemed resilient against an economic slowdown.

``As the world teeters toward recession, the belief that emerging market growth will support commodity prices is starting to evaporate,'' said Hiroshi Morikawa, a Tokyo-based senior strategist at MU Investments Co., which manages the equivalent of $14 billion in Tokyo. ``Investors can't do anything when shares fall in the face of the limitless volatility of currencies.''

The Nikkei 225 Stock Average sank 213.71, or 2.5 percent, to close at 8,460.98 in Tokyo. The broader Topix index fell 17.53, or 2 percent, to 871.70. Stocks rebounded in the afternoon from a five-year low on a report the U.S. will move to stem foreclosures.

The Nikkei has tumbled 45 percent so far this year as the credit crisis triggered by the collapse of the U.S. mortgage market slowed global economic growth. Stocks in the gauge traded at 10 times trailing earnings, lower than the 18 price-to- earnings ratio of the Standard & Poor's 500 Index, which retreated to the lowest since April 2003 in New York yesterday.

Japan's Finance Ministry today said the nation's exports rose 1.5 percent in September, while economists had expected a 5.1 percent gain. The government this week acknowledged that the world's second-largest economy has probably entered its first recession in six years.

Currency Effect

The Japanese currency appreciated against the euro to as much as 123.43 today, the strongest since December 2002, while rising versus the dollar to as much as 96.86 from 99.71 at the close of yesterday's stock trading in Tokyo. A stronger yen diminishes the value of repatriated sales from abroad.

Mazda, which gets more than half its operating profit in Europe, retreated 11 percent to 220 yen, the lowest since May 2003. Olympus lost 11 percent to 1,904 yen, while Sony Corp. sank 6.3 percent to 2,295 yen. A 1 yen gain against the dollar cuts Sony's annual operating profit by 4 billion yen ($41 million), it said in May.

``The large swing in foreign exchange has raised a chance Japanese companies will have to cut their earnings forecasts even deeper,'' Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.

Crude Tumbles

Inpex tumbled 7.1 percent to 565,000 yen, leading a decline by energy-related companies. Mitsubishi Corp., Japan's biggest trading company, dropped 5 percent to 1,600 yen, while Sumitomo Metal Mining Co. dived 7.2 percent to 721 yen.

Crude oil for December delivery dropped 7.5 percent to $66.75 a barrel in New York yesterday, the lowest close since June 2007 and less than half its July record as the economic slowdown reduced fuel consumption. Copper futures sank to the lowest since November 2005, while gold declined 4.3 percent.

The Nikkei pared a 7.6 percent plunge after the Wall Street Journal said the U.S. is considering spending about $40 billion to curb home foreclosures. The Federal Deposit Insurance Corp. may offer up an incentive plan for banks to rework troubled home loans into more affordable arrangements, the Journal said.

Still `Fearful'

The report ``shored up Japan's market in the afternoon, though the $40 billion injection would be just temporary relief,'' said Koji Toda, chief fund manager at Resona Trust & Banking Co. ``Gains in defensive stocks like power generators and land transport companies showed how fearful investors are.''

Tokyo Electric, Asia's biggest power utility, jumped 2.6 percent to 2,760 yen, while Kyushu Electric Power Co. added 5.4 percent to 2,260 yen. Tokyu Corp., a bus and train operator, climbed 6.5 percent to 395 yen.

Elpida Memory Inc., Japan's largest maker of memory chips, climbed 16 percent to 707 yen, rising for just the third time this month. The stock posted double-digit percentage declines for six-straight days after Elpida reported a preliminary quarterly loss and announced a plan to issue convertible bonds.

Nikkei futures expiring in December retreated 2.7 percent to 8,430 in Osaka and slumped 2.7 percent to 8,435 in Singapore.

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