Japanese Stocks Plunge as U.S. Auto Rescue Fails, Yen Soars

By Patrick Rial and Toshiro Hasegawa

Dec. 12 (Bloomberg) -- Japanesestocks plunged, retreating for the first time this week, after the U.S. Senate failed to agree on an auto-industry bailout and the yen surged to a 13-year high, stoking concern the global recession will worsen.

Toyota Motor Corp., which gets more than half its profit in North America, tumbled 10 percent as disagreements over wages for union workers derailed a compromise among Senators, sending the yen past 90 to the dollar. Rival Honda Motor Co. lost 12 percent. Bridgestone Corp., the world’s No. 1 tiremaker, sank 9.6 percent after oil prices surged the most in five weeks yesterday.

The Nikkei 225 Stock Average tumbled 484.68, or 5.6 percent, to close at 8,235.87, slimming its gain this week to 4 percent. The broader Topix index fell 35.88, or 4.2 percent, to 813.37, paring a weekly climb to 3.5 percent. Volume on the main board of the Tokyo Stock Exchange rose to the highest since Oct. 30.

“Investors have been betrayed again by U.S. politicians,” said Yasuhiro Miyata, a senior portfolio manager at DIAM Co. in Tokyo, which manages the equivalent of $109 billion. “Even with the knowledge that we are in the midst of a crisis, they were unable to come to an agreement, and investors have decided to abandon ship.”

Politically motivated delays for a bank-bailout package and the decision by authorities to allow Lehman Brothers Holdings Inc. to collapse also sent markets reeling and represent other major missteps in the financial crisis, Miyata said.

‘Dread’ Wall Street

The Nikkei rose 10 percent in the four days through yesterday after the U.S. and China announced spending plans to stem an economic slowdown. The gauge has fallen 46 percent in 2008, its worst year ever, as Japan, Europe and the U.S. sank into their first simultaneous recession since World War II.

The U.S. said yesterday the number of Americans filing first-time claims for unemployment benefits surged to 573,000 last week, the highest since November 1982. Meanwhile, sentiment among Japanese consumers became the most pessimistic in at least 26 years, the Cabinet Office said today, indicating weaker spending may deepen the recession.

Toyota slumped 10 percent to 2,760 yen. Honda, Japan’s No. 2 automaker, retreated 12 percent to 1,921 yen, the biggest decline since Oct. 31. Daihatsu Motor Co., the country’s largest minicar maker, fell by its daily limit of 100 yen, or 12 percent, to 769.

“I dread looking at Wall Street tomorrow,” Majority Leader Harry Reid said before the vote in Washington. “It’s not going to be a pleasant sight.”

Parts Suppliers

A $14 billion automaker bailout plan for General Motors Corp. and Chrysler LLC failed to win the 60 votes necessary to end debate and bring the bill to a vote. Connecticut Democrat Christopher Dodd, who helped lead the negotiations, said the final unresolved issue was a Republican demand that unionized autoworkers accept a reduction in wages next year, rather than later, to match those of U.S. autoworkers who work for foreign- owned companies, such as Toyota.

Additionally, some of Chrysler’s auto-parts suppliers concerned about losing money in case of a bankruptcy have asked the company to pay up front for orders, according to two people familiar with the matter.

Denso Corp., the nation’s largest auto parts maker, and Aisin Seiki Co., the world’s biggest maker of automatic transmissions, plummeted. Both supply GM and Chrysler with parts. Denso lost 12 percent, while Aisin fell 13 percent.

“I don’t think investors or the man on the street are mentally prepared for the bankruptcy of U.S. automakers,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co., which manages about $96 billion in Tokyo.

Yen, Oil

The yen climbed to as high as 88.58 versus the dollar following the bailout bill rejection, a level not seen since August 1995. A stronger yen reduces the value of overseas sales. Both Toyota and Honda predicted the yen would average 103 versus the dollar this fiscal year in their most recent forecasts.

Bridgestone fell 9.6 percent to 1,396 yen. Smaller rival Sumitomo Rubber Industries Ltd. dropped 8.5 percent to 774 yen. About 60 percent of the material used in tires is oil based, according to the Japan Automobile Tyre Manufacturers Association.

Crude oil for January delivery soared 10 percent to $47.98 a barrel in New York yesterday, the biggest gain since Nov. 4, after Saudi Arabia said it cut output in November. The contract retreated as much as 5.9 percent today.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.