Japan Stocks Fall on Earnings Outlook; Fanuc Slumps on Orders

By Masaki Kondo

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

Citizen Holdings Co., the world's biggest maker of mechanical watches, sank 10 percent after cutting its profit target by a third. Canon Inc., which last month predicted its first profit drop in nine years, dived 5.5 percent. Fanuc Ltd., the world's top industrial-robot maker, sank 5.3 percent after orders for machine tools plunged the most in more than six years.

The Nikkei 225 Stock Average declined 337.27, or 3.7 percent, to 8,744.16 as of 10:06 a.m. in Tokyo. The broader Topix index fell 29.11, or 3.2 percent, to 887.54, with almost five stocks slumping for each that rose.

``In such a volatile market with low prospects for global economic growth, long-term investors are hesitant to buy in,'' Mamoru Shimode, chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.

Waning demand in the U.S. and Europe is dimming the earnings outlook for Japanese companies, prompting businesses from Toyota Motor Corp. to Sony Corp. to slash their 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.

Japan's current-account surplus narrowed for a seventh month in September as overseas demand weakened and higher energy costs pushed the import bill higher, the government said today.

Corporate earnings are not likely to start recovering 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 cut his 2008 pretax-profit estimate on Japanese companies to a 40 percent decline from a 30 percent drop.

Canon, Nintendo

Citizen, the world's biggest maker of mechanical watches, plummeted 10 percent to 500 yen, after slashing its annual net- income estimate by 32 percent, citing a stronger yen and weakening demand. Canon, the world's biggest camera maker, retreated 5.5 percent to 3,250 yen, while Nintendo Co., the largest maker of handheld game players, lost 5.6 percent to 30,500 yen in Osaka trading.

The yen strengthened against the dollar to as much as 97.49 from 99.00 at the close of stock trading in Tokyo yesterday, while appreciating 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.

Fanuc fell 5.3 percent to 6,060 yen, and JTEKT Corp., which makes bearings for electronic equipment, plunged 8.9 percent to 729 yen. Makita Corp., a maker of electric power tools, fell 4.3 percent to 2,005 yen.

Tool Orders

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 maker of agricultural machinery, surged 10 percent to 195 yen, bringing its two-day gain to 23 percent. The company yesterday posted 690 million yen ($7.1 million) in first- half net income, defying its loss forecast.

Nikkei futures expiring in December retreated 4.2 percent to 8,740 in Osaka and slumped 4.1 percent to 8,735 in Singapore.

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