Japan Stocks Advance, Led by Developers on Lending Speculation

By Masaki Kondo and Shani Raja

Dec. 18 (Bloomberg) -- Japan stocks reversed an early drop as real estate shares led gains on speculation central bank interest-rate cuts will ease lending.

Mitsui Fudosan Co., the nation’s biggest developer, jumped 8.2 percent as traders bet the Bank of Japan will reduce rates this week, following a record cut by the Federal Reserve. Sumitomo Realty & Development Co., the nation’s No. 3 real estate company, climbed 7.6 percent. Honda Motor Co. slumped 4.1 percent after the carmaker cut its annual earnings forecast by two-thirds.

The Nikkei 225 Stock Average rose 102.50, or 1.2 percent, to 8,715.02 as of 9:50 a.m. in Tokyo, reversing a 0.9 percent drop. The broader Topix index lost 6.85, or 0.8 percent, to 845.31, with three stocks advancing for every two that fell.

There is a 54 percent chance the central bank will lower borrowing costs from 0.3 percent after concluding its two-day meeting tomorrow, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps. The Fed on Dec. 17 cut its benchmark rate to between zero and 0.25 percent for the first time and said it will do whatever is needed to end the longest recession in a quarter-century.

The collapse of the U.S. mortgage market has prompted banks to tighten lending, stripping businesses of cash. On Dec. 15, Matsumoto Kenko Co. became the 24th listed Japanese property- related company to file for bankruptcy this year.

Mitsui Fudosan climbed 8.2 percent to 1,452 yen, while closest rival Mitsubishi Estate Co. rose 5.7 percent to 1,532 yen, extending yesterday’s 10 percent surge. Sumitomo Realty advanced 7.6 percent to 1,375 yen. A gauge of real-estate companies was the biggest winner among 33 industry groups on the Topix.

The Topix Real Estate Index has risen 12 percent in the past two days, and it led gains among the broader gauge’s 33 industry groups today.

Honda Slumps

Honda dived 4.1 percent to 1,814 yen, while market leader Toyota Motor Corp. slid 1.3 percent to 2,990 yen. Canon Inc., which gets a third of its sales from the Americas, sank 1.5 percent to 2,705 yen.

Honda chopped its annual operating-profit target by 67 percent to 180 billion yen ($2.06 billion) and halved its third- quarter dividend, citing the surging yen and dwindling demand. Every 1 yen gain against the dollar cuts Honda’s full-year earnings by 18 billion yen.

“Honda’s earnings revision is likely to affect shares throughout the auto sector,” Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management, said in an interview with Bloomberg Television.

The yen appreciated against the dollar to as much as 87.14, the strongest level since July 1995, from 88.76 at the close of stock trading in Tokyo yesterday. The Japanese currency traded at 111.76 against the dollar at the beginning of this year.

Nikkei futures expiring in March added 0.9 percent to 8,730 in Osaka and rose 0.6 percent to 8,725 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.