Japan Stocks Drop on Bank Concern; Nikkei Set for 7-Week Low

By Masaki Kondo and Shani Raja

Jan. 21 (Bloomberg) -- Japanese stocks fell, driving the Nikkei 225 Stock Average to a seven-week low, on concern a deepening economic slump will force banks to raise more capital.

Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., Japan’s largest listed banks, dropped more than 4 percent as speculation global banks need to bolster capital sent U.S. financial shares to an almost 14-year low yesterday. Sony Corp., which gets a quarter of its sales from the U.S., lost 3.5 percent after the yen appreciated against the dollar. Mazda Motor Corp., Japan’s fourth-largest automaker, slid 4.4 percent on a Nikkei newspaper report it’s seeking aid to help pay salaries.

“The concern is that banks around the world are short of capital,” said Philip Schwartz, who directly manages $800 million of international equities at ING Investment Management in New York. “As we increasingly come to that realization, stocks are just getting hammered.”

The Nikkei declined 196.73, or 2.4 percent, to 7,869.06 as of 9:42 a.m. in Tokyo, set for the lowest close since Dec. 2. The broader Topix index fell 17.17, or 2.1 percent, to 787.86, with four stocks falling for each that rose.

The Nikkei lost a record 42 percent last year as global financial companies posted more than $1 trillion in writedowns and credit losses and the world’s biggest economies slipped into recession. Japan’s slump will be “very severe” and may last for three years, Hiroshi Yoshikawa, head of the government committee that charts the economic cycle, said in an interview this week. That would mark the country’s longest downturn in the postwar era.

Capital Concern

Mitsubishi UFJ sank 5.2 percent to 476 yen, while smaller rival Mizuho lost 4.4 percent to 218 yen. Sumitomo Mitsui Financial Group Inc. dropped 6.2 percent to 3,310 yen. Banks contributed the most to the Topix’s decline, followed by makers of electronics and cars.

Yesterday, U.S. financial shares plummeted on concern mounting losses will force companies to raise more capital. Bank of America Corp., which last week posted its first quarterly loss since 1991, dropped 29 percent after Friedman, Billings, Ramsey Group Inc. said the bank needs at least $80 billion to restore its capital. State Street Corp., the largest money manager for institutions, tumbled 59 percent after its unrealized losses almost doubled as of Dec. 31 from three months earlier.

Sony, the world’s second-biggest maker of consumer electronics, retreated 3.5 percent to 1,954 yen, and Funai Electric Co., which counts North America as its biggest market by sales, fell 2.2 percent to 2,035 yen in Osaka trading. Nintendo Co., which sells four times more Wii game machines in the Americas than in Japan, lost 2.8 percent to 31,550 yen in Osaka.

Government Aid

The yen appreciated to as much as 89.69 today from 90.28 at the 3 p.m. close of stock trading in Tokyo. A stronger Japanese currency cuts the value of overseas sales for the nation’s companies.

Mazda slumped 4.4 percent to 153 yen, while bigger rival Nissan Motor Co. fell 3.1 percent to 317 yen. Mazda asked the government for financial assistance to pay salaries at its Hiroshima and Yamaguchi plants, while Nissan plans to seek support, the Nikkei newspaper reported today. Toyota Motor Corp., poised to become the world’s largest automaker after sales results today, slipped 2.9 percent to 3,010 yen.

Nikkei futures expiring in March retreated 2.4 percent to 7,860 in Osaka and slumped 2.5 percent to 7,860 in Singapore.

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