Japan Stocks Drop on Recession Fear; Topix Touches 25-Year Low

By Masaki Kondo

Feb. 18 (Bloomberg) -- Japanese stocks fell, sending the Topix index toward the lowest close in 25 years, on concern a deepening slump in the global economy will further crimp demand for resources and hurt company earnings.

Inpex Corp., Japan’s No. 1 oil explorer, lost 3.4 percent after crude prices dropped the most in three weeks. Oji Paper Co. and Hokuetsu Paper Mills Ltd. led declines by their peers after UBS AG lowered the stocks to “neutral” on falling paper prices. Toyota Motor Corp. rose 2 percent on a Nikkei newspaper report the carmaker will boost output after reducing inventory.

“Economies are bad everywhere and we can’t yet tell when they may recover,” said Hideyuki Ookoshi, who helps oversee about $365 million at Tokyo-based Chiba-Gin Asset Management Co. “With so much uncertainty ahead, we can’t predict how good or bad company earnings will be.”

The Nikkei 225 Stock Average declined 93.80, or 1.2 percent, to 7,551.71 as of 12:36 p.m. in Tokyo. The broader Topix lost 6.68, or 0.9 percent, to 749.85, and sank to as low as 744.37, which would be the lowest close since January 1984.

Japanese Finance Minister Shoichi Nakagawa resigned yesterday amid accusations he was drunk at a Group of Seven press conference, undermining confidence the government can tackle a recession that’s dragged the Nikkei down by 15 percent this year. Nakagawa’s departure came a day after the Cabinet Office reported the nation’s economy shrank at an annual rate of 12.7 percent last quarter, the most since the 1974 oil shock.

The Nikkei fell by a record last year as the world’s largest economies slipped into recession, and more than two-thirds of the gauge’s members trade at below book value. In the past two days, the value of stocks traded in Tokyo was about 40 percent below the six-month average as investors waited for details on restructuring plans for U.S. automakers.

Stimulus Bill

The Federal Reserve Bank of New York yesterday said its general economic index sank to the lowest level this month since the tally started in 2001. Also, U.S. President Barack Obama signed into law a $787 billion stimulus plan to revive the world’s biggest economy.

Concern the global economic slump will deepen drove down commodity prices. Crude oil for March delivery sank 6.9 percent to settle at $34.93 a barrel in New York yesterday, the steepest drop since Jan. 27. Copper futures plummeted 7.2 percent, the sharpest dive since Oct. 30.

Inpex lost 3.4 percent to 656,000 yen, while closest domestic rival Japan Petroleum Exploration Co. sank 2.6 percent to 3,690 yen. Nippon Mining Holdings Inc., the nation’s biggest copper producer, fell 4.4 percent to 372 yen. Oil and copper prices rebounded in Asian trading today.

Paper Prices

Oji Paper retreated 5.4 percent to 385 yen, and Hokuetsu Paper Mills Ltd. fell 2.9 percent to 407 yen. UBS cut its ratings on the stocks from “buy,” saying a faster-than-expected drop in paper prices will likely lead to lower profits.

Toyota added 2 percent to 3,070 yen, while Fuji Heavy Industries Ltd., partly owned by Toyota, climbed 3.8 percent to 300 yen.

Toyota, the world’s No. 1 automaker, will increase domestic production in May by about 30 percent from the previous three months because its inventory is expected to fall, the Nikkei newspaper said today. Earlier this month, waning demand in the U.S. and Japan prompted the carmaker to triple its loss forecast for the business year to March 31.

“After manufacturers cut output and clear inventory, the economy may enter a trend where companies can boost production again,” said Chiba-Gin’s Ookoshi.

Detroit-based General Motors Corp. and Chrysler LLC met a deadline today to report progress in revamping operations with $17.4 billion in U.S. government loans. GM said it needs as much as $16.6 billion in fresh loans, while Chrysler said it’s seeking $5 billion more.

Nikkei futures expiring in March retreated 1.2 percent to 7,550 in Osaka and fell 1.3 percent to 7,540 in Singapore.

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