Japan Stocks Slump on Global Manufacturing Drop, Stronger Yen

By Masaki Kondo

Dec. 2 (Bloomberg) -- Japanese stocks tumbled to the lowest level in almost two weeks as a drop in global manufacturing added to evidence the global recession is deepening.

Kobe Steel Ltd., Japan’s fourth-largest maker of the metal, sank 7.4 percent after tripling production cuts on dwindling demand from car and ship makers. Honda Motor Co., which gets more than half its profit from North America, slid 6.9 percent after the yen strengthened against the dollar. Oil explorer Inpex Corp. fell 10 percent after crude plunged to a three-year low.

U.S. manufacturing shrank last month at the fastest pace since 1982, coinciding with record drops in Europe and China.

“The global economy is deteriorating at an accelerating rate,” said Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management Co. “The U.S. manufacturing number convinced people how bad the situation is.”

The Nikkei 225 Stock Average slumped 533.53, or 6.4 percent, to close at 7,863.69 on the Tokyo Stock Exchange. The broader Topix index fell 40.35, or 4.9 percent, to 787.12. Both gauges sank to the lowest close since Nov. 20. A gauge tracking utilities was the only gainer among 33 Topix industrial groups.

Credit losses and writedowns have reached nearly $1 trillion at global financial companies, prompting banks to cut back on lending to businesses and consumers. Falling demand pushed manufacturers to cut output worldwide, threatening to prolong a recession that started in the U.S. a year ago, the National Bureau of Economic Research said yesterday.

Global Cuts

American manufacturing contracted in November at the steepest rate in 26 years, the Institute for Supply Management said yesterday, while European production sank the most since Markit Economics created in 1998 an index to measure it. Those figures followed a report by the China Federation of Logistics and Purchasing that said the nation’s production shrank the most on record.

Kobe Steel lost 7.4 percent to 150 yen after saying it would deepen output reductions threefold to 600,000 tons in the second half. The world’s No. 3 steelmaker, JFE Holdings Inc., which announced its own cuts on Nov. 20, sank 9.5 percent to 2,100 yen.

“Domestic manufacturers are not going to be able to overcome the challenges of the worsening economy,” said Ayako Sera, a strategist at Sumitomo Trust & Banking Co. in Tokyo, which manages $266 billion in assets.

Concerns the global recession will worsen drove foreign currencies and commodity prices lower, dimming the earnings prospects of exporters and resource companies. Honda, Japan’s second-biggest automaker, sank 6.9 percent to 1,886 yen, while Canon Inc., which earns 80 percent of its revenue overseas, slumped 6.2 percent to 2,640 yen. Olympus Corp., an endoscope maker that derives the biggest portion of overseas earnings from Europe, lost 9 percent to 1,757 yen.

Yen, Oil

The yen appreciated to as much as 92.89 against the dollar, the highest since Oct. 28., from 95.24 at the close of stock trading in Tokyo yesterday, while rising versus the euro to as much as 117.24 from 120.88.

Inpex, Japan’s largest oil explorer, fell 10 percent to 526,000 yen, driving a gauge of mining companies to the biggest decline among the Topix’s 33 industry groups. Closest rival Japan Petroleum Exploration Co. slid 8.3 percent to 3,300 yen, while Mitsubishi Corp., a trading company that gets more than half its profit from commodities, lost 10 percent to 1,073 yen.

Crude oil for January delivery retreated as much as 3.5 percent to $47.58 a barrel in New York today, the lowest level since May 2005. A $1 price change in a barrel of oil alters Inpex’s annual net income by 2.2 billion yen ($24 million), the company said in May.

Convertible Bonds

Nomura Holdings Inc., Japan’s biggest brokerage, retreated 9.7 percent to 612 yen, the lowest close since July 1984. The company yesterday said it will sell 100 billion yen in subordinated convertible bonds to Dai-ichi Mutual Life Insurance Co., joining the nation’s biggest banks in selling securities to replenish capital. Convertible bonds contain a provision that gives buyers the right to exchange the debt for the issuer’s stock at a fixed exchange ratio.

Tokyo Gas Co. advanced 4.1 percent to 455 yen, and Osaka Gas Co. climbed 3.7 percent to 390 yen. The two companies led gains on the Nikkei. Toho Gas Co. gained 4.5 percent to 586 yen.

“We continue to focus on domestic demand-related defensive issues in our Japanese equity model portfolio,” Shinichi Ichikawa, chief equity strategist at Credit Suisse Group, wrote in a report today. Utilities, telecommunications and real estate are the brokerage’s biggest sector weightings in the Japanese market.

Japanese share extended losses in the afternoon after the Wall Street Journal said Goldman Sachs Group Inc. may record a quarterly loss of $5 a share, or $2 billion, citing people with knowledge of the industry.

Mizuho Financial Group Inc., Japan’s second-biggest publicly traded bank, plummeted 8.4 percent to 228,300 yen, while market leader Mitsubishi UFJ Financial Group Inc. dropped 6.9 percent to 474 yen. Sumitomo Mitsui Financial Group Inc., the third biggest, slid 7.8 percent to 320,000 yen.

Nikkei futures expiring in December retreated 6.2 percent to 7,880 in Osaka and slumped 6.1 percent to 7,880 in Singapore.

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