Japan's Stocks Decline; Nikkei Heads for Worst Month on Record

By Masaki Kondo

Oct. 31 (Bloomberg) -- Japan's stocks fell as companies lowered profit forecasts on slowing demand and the stronger yen. Soaring volatility is helping the Nikkei 225 Stock Average finish its worst month on record with its best weekly gain.

Konica Minolta Holdings Inc., Japan's first maker of color camera film, and Mazda Motor Corp. sank more than 10 percent after slashing annual earnings targets. Isuzu Motors Ltd., which had risen 43 percent in the past three days, fell 6.2 percent.

The Nikkei 225 Stock Average declined 261.19, or 2.9 percent, to 8,768.57 as of 10:24 a.m. in Tokyo. The broader Topix index fell 18.27, or 2 percent, to 881.10. The Nikkei jumped for a third-straight-day yesterday, surging 10 percent in its fourth- sharpest leap ever.

``Yesterday's rally was too good to be true,'' Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said in an interview with Bloomberg Television. ``Investors are very likely to take this chance to lock in profits.''

The Nikkei headed for a 15 percent weekly gain, the biggest since Nikkei Inc. took over the benchmark from the Tokyo Stock Exchange in 1970. The gauge is poised for a record 22 percent drop in October, during which it recorded six of its 10 biggest moves. The Topix is set for a 19 percent monthly retreat, the most since September 1990.

Of 323 companies that reported first-half earnings so far, 52 percent of them lowered annual forecasts, according to Shinko Research Institute Co. Among them are Konica Minolta, Mazda and Mitsubishi Electric Corp., all of which cited slowing overseas demand.

Rate Cuts

Konica Minolta dropped 10 percent to 647 yen, while Mazda, Japan's fourth-largest automaker, dived 13 percent to 215 yen. Mitsubishi Electric sank 5.6 percent to 596 yen.

Olympus Corp., the world's biggest endoscope maker, retreated 6 percent to 1,877 yen, leading a gauge of precision instrument makers to the second-biggest decline among 33 industry groups on the Topix. The company's first-half profit may fall 88 percent after the acquisition of medical-equipment maker Gyrus Group Plc, the Nikkei newspaper reported.

The Bank of Japan may join overseas counterparts today in lowering interest rates to stimulate demand. The central bank, which will hold a policy meeting today, is expected by economists to cut the benchmark rate to 0.25 percent from 0.5 percent, the first reduction in seven years.

Hong Kong's central bank yesterday cut its base rate, following moves by the Federal Reserve and the People's Bank of China. European Central Bank Governor Jean-Claude Trichet said on Oct. 27 he may cut rates next week.

Stimulus Plan

The Topix had risen by a fifth in the past three days through yesterday as shares trading below book values attracted investors. One out of five stocks on the index had gained at least 20 percent in the period.

Isuzu, Japan's largest maker of light-duty trucks, lost 6.2 percent to 166 yen, while Honda Motor Co., which had double-digit percentage gains in the past three days, sank 6.5 percent to 2,580 yen. Sompo Japan Insurance Inc., which jumped by its daily limit yesterday, declined 5.2 percent to 672 yen.

Japan's Prime Minister Taro Aso yesterday promised to pump 5 trillion yen ($51 billion) into the economy and indicated he would delay elections until the global financial crisis subsides. Under the plan, the government will give money to households and cut highway tolls to reduce freight costs.

``The plan appears set up to help out in an election,'' Daiwa SB's Monji said. ``Investors won't appreciate this.''

Nikkei futures expiring in December retreated 2.9 percent to 8,770 in Osaka and slumped 2.9 percent to 8,775 in Singapore.

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