Japan Stocks Climb on Steel Speculation; Weapon Makers Surge

By Masaki Kondo

May 25 (Bloomberg) -- Japanese stocks rose for the first time in three days, led by steelmakers on speculation prices for the alloy will stabilize. Stocks pared gains on concern a nuclear test by North Korea today will ratchet up political risk in the region.

JFE Holdings Inc., Japan’s No. 2 steelmaker, jumped 3.7 percent after the Nikkan Kogyo newspaper said Toyota Motor Corp. won’t ask for deeper price cuts. Komatsu Ltd., the world’s second-biggest maker of earthmovers, and rival Hitachi Construction Machinery Co. climbed more than 2 percent after Goldman, Sachs & Co. raised them to “buy.” Defense industry suppliers Ishikawa Seisakusho Ltd. and Howa Machinery Ltd. surged at least 9.1 percent after North Korea’s bomb test.

“Investor expectations that the global economy has hit bottom are running ahead of its actual recovery,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co. in Tokyo, which oversees the equivalent of $96 billion.

The Nikkei 225 Stock Average climbed 121.19, or 1.3 percent, to close at 9,347.00 in Tokyo, after earlier rising as much as 1.9 percent. The broader Topix index added 7.12, or 0.8 percent, to 883.00, with more than three stocks advancing for every one that slumped. The daily trading value of Topix-listed stocks fell to the lowest level in two months.

The Topix has risen 2.8 percent this year, outperforming a 2.4 percent gain in the MSCI World Index. Two-thirds of Topix- listed stocks have dividend yields estimated to be lower than the 1.43 percent return on 10-year Japanese government bonds, according to Bloomberg data.

Nuclear Test

North Korea conducted a “successful” nuclear test today, the communist nation’s official Korean Central News Agency said. It was the second time Kim Jong Il’s regime detonated a nuclear device. North Korea also fired a short-range missile, Yonhap News reported, citing an unidentified diplomatic source.

JFE added 3.7 percent to 2,970 yen, while Nippon Steel Corp., the world’s No. 2 maker of the alloy, gained 2.7 percent to 348 yen. Kobe Steel Ltd. jumped 4.4 percent to 166 yen.

Toyota agreed on a price cut of about 15,000 yen ($158) per ton with steelmakers, the Nikkan Kogyo newspaper reported today, without citing anyone. Toyota initially sought a bigger discount as iron ore prices fell, the Japanese-language newspaper said.

“The outcome of negotiations with Toyota will have a large influence over talks with other steel users,” Yuji Matsumoto, an analyst for Nomura Holdings Inc., wrote in a Japanese- language note to clients.

Weapon Makers

Komatsu rose 2.6 percent to 1,360 yen, and Hitachi Construction gained 2.1 percent to 1,516 yen. Goldman Sachs raised its ratings on the stocks to “buy” from “neutral,” saying demand in emerging markets will improve and current prices haven’t fully reflected a recovery in earnings.

Electronics retailer Best Denki Co. jumped 17 percent to 412 yen, rising the most since April 2003. Rival Bic Camera Inc. surged 7.5 percent to 31,150 yen.

The Nikkei newspaper reported over the weekend that sales of flat-panel televisions increased 45 percent during the first week of a government-led campaign to encourage consumers to buy environmentally friendly appliances. Nikkei cited survey company BCN Inc.

Ishikawa Seisakusho, a provider of weaponry for Japan’s defense forces, soared 17 percent, while firearms maker Howa Machinery jumped 9.1 percent, the most since Dec. 1.

“This move by North Korea came out of the blue, and it introduces geopolitical risk into the equation again for investors,” Michiya Tomita, who helps manage $61 billion at Mitsubishi UFJ Asset Management Co. in Hong Kong, said of the communist nation’s reported nuclear test.

Nikkei futures expiring in June added 1.2 percent to 9,340 in Osaka and gained 1.6 percent to 9,355 in Singapore.

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