Japan’s Nikkei 225 Rises, Led by Banks on Rate-Cut Speculation

By Masaki Kondo and Satoshi Kawano

Dec. 18 (Bloomberg) -- Japan’s Nikkei 225 Stock Average advanced, led by banks and developers, on optimism central bank rate cuts will ease lending. Gains were limited as the surging yen and Honda Motor Co.’s forecast cut sent auto shares lower.

Sumitomo Mitsui Financial Group Inc., Japan’s No. 3 listed bank, jumped 8.5 percent as traders bet the Bank of Japan will reduce rates this week, following a record cut by the Federal Reserve. Mitsui Fudosan Co., Japan’s biggest developer, jumped more than 4 percent for a second day. Orix Corp., which provides corporate loans and develops real estate, surged 10 percent. Honda slumped 3.5 percent, while larger rival Toyota Motor Corp. declined 2.3 percent as the yen traded near a 13-year high.

“Expectations the BOJ will reduce rates prompted investors to snap up stocks that will benefit from the cut, such banks and real estate companies,” said Yoshihisa Okamoto, who helps oversee $26 billion at Mizuho Asset Management Co. in Tokyo. “Investors are wary of carmakers and other exporters, as falling sales and the surging yen have put earnings into free fall.”

The Nikkei 225 rose 54.71, or 0.6 percent, to close at 8,667.23 in Tokyo. The broader Topix index inched up 0.23, or less than 0.1 percent, to 838.69 after drifting between gains and losses at least 13 times. About three stocks retreated for every two that rose on the Topix.

There’s a 57 percent chance Japan’s central bank will lower borrowing costs from the current 0.3 percent level at the end of its two-day meeting tomorrow, based on calculations by JPMorgan Chase & Co. using overnight interest-rate swaps. The Fed on Dec. 17 cut its benchmark rate to as low as zero for the first time and said it will do whatever is needed to end the U.S. recession.

Ballooning Bankruptcies

Sumitomo Mitsui surged 8.5 percent to 384,000 yen, making it the most actively traded stock by value in Tokyo. Bigger rival Mizuho Financial Group Inc. added 8.1 percent to 256,800 yen, while Resona Holdings Inc., Japan’s fourth largest bank, advanced 6.5 percent to 148,000 yen. Five of the 10 biggest winners on the Nikkei were banks.

“An interest-rate cut may halt ballooning bankruptcies and reduce banks’ costs to dispose of non-performing loans,” said Kazuki Miyazawa, a market analyst at Daiwa Securities SMBC Co.

The collapse of the U.S. mortgage market prompted banks to tighten lending, stripping businesses of cash. On Dec. 15, Matsumoto Kenko Co. became Japan’s 24th listed property-related company to file for bankruptcy this year. Total bankruptcies of traded companies reached 32, the most in Japan for a single year since World War II, according to researcher Teikoku Data Bank Co.

Mitsui Fudosan climbed 4.3 percent to 1,400 yen, and Sumitomo Realty & Development Co., the third biggest, rose 4.6 percent to 1,337 yen. Orix, Japan’s biggest non-bank financial company, soared 10 percent to 5,360 yen, posting the fourth- sharpest leap on the MSCI World Index.

Surging Yen

Honda fell 3.5 percent to 1,825 yen, the lowest close since Dec. 8. The automaker slashed its annual operating-profit target by 67 percent to 180 billion yen ($2.05 billion) and halved its third-quarter dividend, citing the stronger yen and dwindling demand. Toyota, the world’s second-biggest carmaker, retreated 2.3 percent to 2,960 yen, and Aisin Seiki Co., Japan’s biggest maker of auto transmissions, plunged 5.9 percent to 1,149 yen.

The recession and mounting unemployment are expected to drive domestic vehicle sales down to a 31-year low next year, according to a report released by the Japan Automobile Manufacturers Association today. Toyota cut its annual profit forecast by more than half last month. Automakers were the biggest drag on the Topix.

Steelmakers

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 versu the dollar at the beginning of 2008.

JFE Holdings Inc., Japan’s second-biggest steelmaker, soared 7.2 percent to 2,600 yen, the steepest jump since Nov. 10, while bigger competitor Nippon Steel Corp. leapt 3.6 percent to 292 yen. If the yen trades at 95 against the dollar in the second half, instead of the companies’ estimate of 105, JFE’s operating profit will rise by 10 billion yen and Nippon Steel’s by 30 billion yen, the Nikkei newspaper reported today. A stronger yen reduces the costs of imported raw materials.

Nikkei futures expiring in March added 0.1 percent to 8,660 in Osaka and dipped 0.1 percent to 8,665 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net.