Japan Stocks Decline on Recession Concern; Inpex Drops on Oil

By Masaki Kondo

March 3 (Bloomberg) -- Japanese shares declined, pushing the Nikkei 225 Stock Average to the brink of a quarter-century low, on concern the deepening recession will diminish demand for commodities and spark new financial losses.

Inpex Corp. and Japan Petroleum Exploration Co., the nation’s biggest oil explorers, retreated almost 6 percent as crude prices tumbled. Tokio Marine Holdings Inc., Japan’s No. 1 casualty insurer, lost 2.8 percent as American International Group Inc. posted the worst quarterly loss in U.S. history, prompting the government to inject more aid. Nomura Holdings Inc. and Sony Corp. reversed losses to surge more than 3.9 percent.

The Nikkei 225 fell 50.43, or 0.7 percent, to close at 7,229.72 in Tokyo, after losing as much as 2.6 percent to the lowest closing level since October 1982. The broader Topix index lost 7.79, or 1.1 percent, to 726.80, the lowest since December 1983, with more than two shares falling for each that gained.

“Earnings will continue to deteriorate, with companies likely posting one-time losses on restructuring and writedowns,” said Mitsushige Akino, who oversees about $615 million at Tokyo- based Ichiyoshi Investment Management Co. “With diminishing auto sales and the spread of hybrid and electric cars, demand for oil will be much smaller than people have hoped.”

Shares pared losses, and the Nikkei briefly rose, after Japanese Finance Minister Kaoru Yosano said the government can’t ignore “excessive declines” in the stock market. Yosano said on Feb. 26 that he ordered a study into ways to bolster equities.

Global Rout

The Nikkei has fallen 18 percent in 2009, extending last year’s record 42 percent dive as recessions in the world’s largest economies and global financial turmoil decimated corporate earnings. Japanese banks including Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. have slashed annual profit targets in part because of increasing writedowns on stockholdings.

In New York, the Dow Jones Industrial Average tumbled 4.2 percent to below 7,000 for the first time since 1997. Europe’s Dow Jones Stoxx 600 Index slid 5 percent to the lowest close in six years after HSBC Holdings Plc, the region’s biggest bank by value, said it plans to raise $17.7 billion and shed 6,100 jobs.

The Institute for Supply Management yesterday said its U.S. factory index stayed at 35.8 last month, below the 50 threshold that divides expansion and contraction. The gauge has remained below 50 since February 2008.

Oil, Copper

Concern a deeper economic slump will diminish energy demand sent oil futures down 10 percent in New York yesterday to $40.15 a barrel, the sharpest drop since Jan. 7. A measure of six primary metals traded in London fell 2.2 percent. Oil rebounded as much as 1.1 percent today.

Inpex tumbled 5.8 percent to 589,000 yen, bringing its two- day decline to 13 percent, while Japan Petroleum fell 5.8 percent to 3,230 yen. Nippon Mining Holdings Inc., the nation’s largest copper producer, sank 4.2 percent to 320 yen. Mitsui & Co., a trading company that earns more than half its profit from commodities, slid 6.6 percent to 827 yen, making it the No. 2 loser on the Nikkei.

Gauges tracking oil explorers, refiners and trading houses posted the steepest drops among the Topix’s 33 industry groups.

Tokio Marine, which chopped its full-year earnings forecast by 88 percent last month on investment losses, dived 2.8 percent to 2,070 yen. Aioi Insurance Co. slipped 4.3 percent to 333 yen, and Sompo Japan Insurance Inc. slid 4.1 percent to 441 yen.

AIG yesterday said its fourth-quarter loss widened to $61.7 billion from $5.29 billion a year earlier. The New York-based insurer will get as much as $30 billion in new government aid, the Treasury Department said.

Short-Selling Risk

Nomura, Japan’s biggest brokerage, advanced 3.9 percent to 451 yen, while Sony jumped 4.5 percent to 1,734 yen. The stocks lost more than 3.4 percent in early trading and were the most actively traded by value in Tokyo.

“If the government pumps public money into the market, stocks won’t drop even if spears fall from the sky,” Norihiro Fujito, senior investment strategist at Tokyo-based Mitsubishi UFJ Securities Co., wrote in a Japanese-language report yesterday. “If short-sellers become convinced the market will stay solid through the end of the month, they will unwind their positions. Short-selling now involves a huge risk.”

Nikkei futures expiring in March dipped 0.6 percent to 7,210 in Osaka and slumped 1 percent to 7,200 in Singapore.

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