Japan Stocks Decline on Earnings Outlook; Citizen, Canon Slump

By Masaki Kondo and Patrick Rial

Nov. 11 (Bloomberg) -- Japanese stocks dropped on concern slumping demand and the stronger local currency will force companies to lower earnings forecasts.

Citizen Holdings Co. and Seiko Holdings Corp. plunged more than 9 percent after the watchmakers slashed profit targets. Canon Inc., which last month predicted its first profit drop in nine years, sank 8.4 percent. JTEKT Corp., an equipment maker part owned by Toyota Motor Corp., lost 10 percent after orders for machine tools fell the most in more than six years.

``We've got the financial crisis on the one hand, but now focus has shifted to the economy,'' said Hiroyasu Ito, a Tokyo- based fund manager at Dai-ichi Mutual Life Insurance Co., which holds $296 billion in assets. ``The speed and violence at which the economy has deteriorated is the reason there's no sense of calm in the stock market.''

The Nikkei 225 Stock Average declined 272.13, or 3 percent, to close at 8,809.30 in Tokyo. The broader Topix index fell 27.29, or 3 percent, to 889.36, with all but one of its 33 industry groups falling. The value of shares traded on the Tokyo exchange was the lowest since Sept. 1.

A slowdown in sales in the U.S. and Europe is dimming the earnings outlook for Japanese companies, prompting businesses from Toyota to Sony Corp. to slash forecasts. Of 922 companies that have reported first-half earnings through Nov. 10, more than half reduced full-year profit targets, according to a report by Shinko Research Institute Co.

Global credit losses and writedowns have reached $690 billion since the collapse of the U.S. mortgage market. Weakening exports drove down Japan's current-account surplus for a seventh month in September, the government said today, while a separate report showed sentiment among merchants was the lowest on record for an October, when the Nikkei hit a 26-year low.

Delayed Recovery

Citizen, the biggest maker of mechanical watches by volume, plunged 9.5 percent after cutting its annual profit forecast by 32 percent. Seiko, the first maker of quartz watches, plummeted 10 percent to 240 yen, after slashing its net income estimate by 91 percent. Both companies cited slumping demand and the stronger yen for the revisions.

Canon, the world's biggest camera maker, dropped 8.4 percent to 3,150 yen, and Toyota, which cut its full-year earnings outlook by half last week, lost 4.9 percent to 3,300 yen.

The yen strengthened against the dollar to as much as 97.49 from 99.00 at the close of stock trading in Tokyo yesterday. It appreciated versus the euro to as much as 123.81 from 127.29. A stronger local currency reduces the value of repatriated overseas sales of Japanese companies.

Corporate earnings won't likely turn the corner until the second half of fiscal 2010 at the earliest, Shinichi Ichikawa, chief equity strategist at Credit Suisse Group, wrote in a report yesterday. He extended his 2008 pretax-profit decline estimate for Japanese companies to 40 percent from 30 percent.

Tool Orders

JTEKT, a maker of power-steering systems, plunged 10 percent to 720 yen, while Makita Corp., the nation's first maker of electric planers, fell 4.5 percent to 2,000 yen. Fanuc Ltd., the world's top industrial-robot maker, fell 3.8 percent to 6,160 yen.

Orders for machine tools tumbled 40 percent in October from a year earlier, the biggest slump since January 2002, the Japan Machine Tool Builders' Association said yesterday. With a decline in orders, toolmakers will likely post operating losses in the next fiscal year to March 2010, Hidehiko Hoshino, an analyst at UBS AG, wrote in a note.

Iseki & Co., a manufacturer of agricultural machinery, surged 11 percent to 196 yen, bringing its two-day gain to 23 percent. The company yesterday posted 690 million yen ($7 million) in first-half net income after having forecast a loss for the period.

Nikkei futures expiring in December retreated 3.7 percent to 8,780 in Osaka and slumped 3.6 percent to 8,780 in Singapore.

To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.