Japan Stocks Drop Toward 4-Month Low as Property Concern Mounts

By Masaki Kondo

Feb. 17 (Bloomberg) -- Japanese stocks fell to a near four- month low on speculation dwindling property demand will drive more developers to bankruptcy and increase bad loans at banks.

Mitsui Fudosan Co. and Mitsubishi Estate Co., the nation’s biggest developers, lost more than 5 percent after builders put fewer condominiums up for sale and the cost of protecting Japanese corporate bonds from default jumped to a record. Chuo Mitsui Trust Holdings Inc. led banks lower with a 4.2 percent drop. Bridgestone Corp., the world’s No. 1 tiremaker, climbed 3.8 percent after Credit Suisse Group raised it to “outperform.”

“With falling rents and rising vacancies, real estate companies’ earnings will remain under heavy pressure,” said Kiyoshi Ishigane, a Tokyo-based senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $61 billion. “More failures among these businesses will increase bad-loan costs for domestic banks.”

The Nikkei 225 Stock Average declined 108.48, or 1.4 percent, to 7,641.69 as of 12:43 p.m. in Tokyo, while the broader Topix index fell 12.03, or 1.6 percent, to 758.07. The gauges were poised for the lowest close since Oct. 28 and Oct. 27 respectively. The U.S. market was closed yesterday for a holiday.

The Nikkei has lost 14 percent this year on concern government and central bank measures to counter a global recession won’t be enough to reignite spending and lending. More than two-thirds of the gauge’s members trade below book value, according to data compiled by Bloomberg.

Mitsui Fudosan dived 6.6 percent to 1,088 yen, extending its slump to a fourth day, while smaller rival Mitsubishi Estate sank 5.5 percent to 1,084 yen. Sumitomo Realty & Development Co., Japan’s No. 3 property company, fell 5.5 percent to 994 yen.

Rising Bankruptcies

Developers added 1,760 new condominium units to the market in January, 24 percent fewer than a year earlier, the 17th consecutive month of declines, the Tokyo-based Real Estate Economic Research Institute said yesterday. Bankruptcies among Japan’s listed companies reached 33 last year, an annual postwar record, according to Tokyo Shoko Research Ltd. Eight more have gone bust this year, with half of them in the property sector.

Chuo Mitsui dropped 4.2 percent to 296 yen, while Mizuho Financial Group Inc., which posted a second-straight quarterly loss on rising bad loans, slumped 3.9 percent to 200 yen. Sumitomo Mitsui Financial Group Inc., Japan’s No. 3 listed bank, slid 3.3 percent to 3,250 yen. Banks contributed the most to the Topix’s retreat.

Default Risk

The Markit iTraxx Japan index of 50 investment-grade borrowers rose 40 basis points to 560 as of 10:45 a.m. in Tokyo, according to BNP Paribas SA prices. Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality.

Aruze Corp. plunged 12 percent to 668 yen, the lowest since September 1998, after the maker of pachinko machines reversed its full-year forecast to a net loss and canceled its dividend. Pilot Corp. plunged 12 percent to 113,800 yen, the sharpest drop since Nov. 11, after the pen and pencil maker said annual net income fell 57 percent short of its forecast.

Bridgestone jumped 3.8 percent to 1,331 yen. Credit Suisse lifted its rating on the stock from “neutral,” saying tiremakers are the only makers of auto parts that can achieve profit gains in the fiscal year beginning in April.

Nikkei futures expiring in March retreated 1.2 percent to 7,630 in Osaka and slumped 1.4 percent to 7,630 in Singapore.

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