Japan Stocks Fall; Nikkei Caps Biggest Monthly Drop on Record

By Masaki Kondo

Oct. 31 (Bloomberg) -- Japan's Stocks retreated, capping the Nikkei 225 Stock Average's worst monthly drop on record, as lower company earnings forecasts overshadowed the central bank's first rate cut in seven years.

Nikon Corp. and Mazda Motors Ltd. dived more than 13 percent after slashing profit targets. Olympus Corp., the world's largest endoscope maker, lost 7.7 percent after reporting an 89 percent drop in first-half earnings. Canon Inc. and machinery maker Komatsu Ltd. jumped after saying they would buy back shares.

The Nikkei 225 fell 452.78, or 5 percent, to close at 8,576.98 in Tokyo. The broader Topix index slipped 32.25, or 3.6 percent, to 867.12. Even so, the Nikkei capped its best week on record, and yesterday had its fourth-biggest gain in history, as investors seized on shares dragged to historic lows on concern the global economy is slowing.

``Undoubtedly volatility has been increasing,'' said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $61 billion in Tokyo. ``Compared with 10 years ago, highly leveraged money is dictating global financial markets, and once those funds start moving, fundamentals become irrelevant.''

The Nikkei posted a 24 percent drop in October, in which it recorded six of its 10 biggest moves, as governments announced $3 trillion in bailouts and central banks cut benchmark rates to ward off a recession. The Bank of Japan today cut its benchmark interest rate to 0.3 percent from 0.5 percent, following rate cuts in the U.S., China and Taiwan.

Lower Forecast

For the week, the Nikkei jumped 12 percent, the biggest since Nikkei Inc. took over and renamed the benchmark from the Tokyo Stock Exchange in 1970. The Topix climbed 7.6 percent, the most since November 1997.

Of 323 Japanese companies that have reported first-half earnings so far, 52 percent cut annual forecasts, according to Shinko Research Institute Co. The yen gained against the dollar by 13 yen and versus the euro by 35 yen this year, prompting overseas-dependent businesses like Nikon and Mazda to lower earnings forecasts.

Nikon, the world's second-biggest maker of cameras used by professionals, sank 18 percent to 1,355 yen, after the yen and stagnant demand pushed the company to cut its full-year profit goal by 40 percent. Mazda, Japan's fourth-largest automaker, plummeted 14 percent to 213 yen.

Mr. Yen

``This is a once-in-a-century crisis, which is very deep and will probably last for another one or two years,'' Eisuke Sakakibara, Japan's top currency official from 1997 to 1999 and popularly know as Mr. Yen, told reporters today. ``This is a simultaneous worldwide recession which could be prolonged for a quite long time.''

Olympus, which counts Europe as its biggest overseas market, sank 7.7 percent to 1,844 yen after saying rising costs related to the purchase of Gyrus Group Plc depressed earnings.

Canon, the world's biggest digital-camera maker, soared 9.9 percent to 3,340 yen, after saying it plans to buy back as much as 1.6 percent of its outstanding shares. Komatsu, the world's second-largest maker of earthmoving equipment, extended its double-digit percentage gain to a second day, rising 10 percent to 1,054 yen. The company said on Oct. 29 it will spend up to 30 billion yen ($311 million) to buy back stocks.

The benchmarks accelerated a decline 15 minutes before the market closed, with the Nikkei falling an additional 3.8 percent.

``We saw some pension money pouring in during the last few days,'' said Hiroaki Kuramochi, head of equities at Tokai Tokyo Securities Co. in Tokyo. ``People were hopeful that we'd see that again near the close of trading today, but it never materialized, which helped spur a sell-off.''

Nikkei futures expiring in December fell 6.4 percent to 8,450 in Osaka and slumped 6 percent to 8,500 in Singapore.

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