Japan Stocks Rise, Led by Drug, Rail Companies; Developers Drop

By Masaki Kondo

Nov. 17 (Bloomberg) -- Japan stocks rose, led by drug and rail companies, after the nation's slip into recession lifted demand for companies relatively insulated against a slowdown, and oil's drop boosted the profit prospects of manufacturers.

Daiichi Sankyo Co., Japan's third-biggest drugmaker surged 5.4 percent, while West Japan Railway Co. gained 6 percent. Oji Paper Co., the nation's biggest user of high-sulfur fuel oil, added 2.4 percent after crude fell a second day. GS Yuasa Corp. surged 15 percent after the maker of batteries and lighting equipment reported a first-half profit gain. Mitsubishi Estate Co. tumbled 5.4 percent after the Nikkei newspaper said rents for Tokyo offices fell for the first time in six years.

The Nikkei 225 Stock Average rose 60.19, or 0.7 percent, to close at 8,522.58 in Tokyo, after losing as much as 2.9 percent and rising 3.6 percent. The broader Topix index added 3.58, or 0.4 percent, to 850.49, paring this year's slump to 42 percent. The total value of stocks traded on the Tokyo bourse was the lowest level since Sept. 1.

``Shares are so cheap that investors are wanting to get back into stocks,'' said Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management Co. ``Looking past companies with low earnings hopes and those that depend on deteriorating overseas demand, the remaining choice is defensive stocks.''

Japan's gross domestic product dropped an annualized 0.4 percent in the third quarter, the Cabinet Office said before markets opened, confirming the economy entered a recession. Economists had estimated a 0.1 percent gain. The International Monetary Fund said on Nov. 7 the U.S., Europe and Japan may have their first simultaneous recession in the post-World War II era.

Dwindling Confidence

Consumer confidence in the U.S., Europe and Japan is at the lowest in at least 15 years, while costs to dispose of bad loans have prompted banks to tighten credit and hoard cash. Japanese businesses that have reported first-half results in the past month posted a combined 31 percent drop in net income, according to Bloomberg data.

Daiichi Sankyo gained 5.4 percent to 1,964 yen, carrying a gauge of drugmakers 2.4 percent higher, the steepest jump in a week. Rival Tsumura & Co. rose 3.4 percent to 3,050 yen, while Takeda Pharmaceutical Co., Japan's biggest drugmaker, added 2.8 percent to 4,820 yen.

West Japan Railway, the country's No. 3 train operator by value, rose 6 percent to 423,000 yen, and bigger rival Central Japan Railway Co. climbed 5.9 percent to 820,000 yen. Osaka Gas Co., the nation's No. 2 distributor of the fuel, climbed 5.4 percent to 374 yen.

Papermakers Gain

Oil prices dropped for a second day, giving a boost to manufacturers with high fuel expenses. Oji Paper added 2.4 percent to 435 yen, and smaller rival Mitsubishi Paper Mills Ltd. rose 6.7 percent to 160 yen. Tokai Rubber Industries Ltd. climbed 3.6 percent to 905 yen.

Crude fell as much as 2.5 percent to $55.60 a barrel today, and has lost almost two-thirds of its value since a record on July 11. Japanese papermakers forecast a combined 95 percent jump in full-year net income, in contrast to a 53 percent decline projected by automakers and a 38 percent slide by electronics manufacturers, according to Shinko Research Institute Co.

``If we see prices for raw materials such as oil stabilize around these levels, that's going to provide a big boost for companies, as well as consumers' wallets,'' said Masaru Hamasaki, senior strategist at Toyota Asset Management Co. in Tokyo, which manages about $15 billion. ``We could see corporate earnings climb double digits in the second half of next year, largely due to lower input costs.''

Developers Slump

GS Yuasa surged 15 percent to 390 yen, making it the biggest winner on the Nikkei. Higher pricing and lower material costs helped the company reverse its first-half earnings to profit from a loss a year earlier, the company said on Nov. 14.

Mitsubishi Estate, Japan's second-biggest developer, dived 5.4 percent to 1,396 yen, and market leader Mitsui Fudosan Co. sank 5.2 percent to 1,383 yen. Daiwa System Co., which develops commercial buildings, plunged 20 percent to 190 yen, the sharpest decline since it listed on the bourse in April 2005. The company reversed its annual profit forecast to a loss, citing a slowdown in sales and the falling value of its inventory.

Building owners are lowering rents for new office buildings in Tokyo as an economic slowdown prevents tenants from expanding operations or moving to new facilities, the Nikkei said today, citing its own survey. On Nov. 14, Dix Kuroki Co. filed for bankruptcy, the 21st listed property-related company to fail in Japan this year, citing tighter lending from banks.

``Banks are increasingly reluctant to lend money to developers as slumps are spreading beyond the real estate sector, reducing lenders' appetite to take risk,'' said Ichiyoshi's Akino.

Nikkei futures expiring in December gained 0.1 percent to 8,490 in Osaka and dipped 0.8 percent to 8,450 in Singapore.

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