Japan Stocks Fluctuate, Heading for Weekly Gain Before Election

By Masaki Kondo

Aug. 28 (Bloomberg) -- Japanese stocks fluctuated on the last trading day before an election that newspaper polls suggest will result in the current ruling party being ousted.

Inpex Corp., Japan’s largest oil explorer, climbed 1.8 percent following the first increase in U.S. oil prices in three days. Obayashi Corp. dragged construction companies lower as the party favored to win the vote has vowed to cut spending on public works. Meidensha Corp., a machinery maker that trades at 236 times estimated earnings, fell 5 percent.

“Institutional investors have missed out on opportunities to buy because the recent rally was too rapid and valuations have risen to a prohibitive level,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which oversees the equivalent of $3.8 billion. “They want to buy on dips.”

The Nikkei 225 Stock Average added 0.4 percent to 10,518.55 as of 1:09 p.m. in Tokyo, putting it on course for a 2.8 percent climb this week. The broader Topix index added 0.4 percent to 967.69, with four stocks gaining for every three that fell.

On Aug. 30, Japan will hold parliamentary elections, and newspaper polls suggest the opposition Democratic Party of Japan will win by a landslide. The ruling Liberal Democratic Party has governed Japan for all but 10 months since 1955.

“People are preferring to stay on the sidelines ahead of Japan’s national election,” said Kiichi Fujita, a strategist at Nomura Holdings Inc., the nation’s largest brokerage.

‘Prohibitive’ Valuations

The Nikkei gained 48 percent from a more than quarter- century low on March 10 through yesterday, outperforming the Standard & Poor’s 500 Index in the U.S. and China’s Shanghai Stock Exchange Composite Index. The rally lifted the Nikkei’s estimated price-earnings ratio to the highest level among the world’s biggest stock markets, according to Bloomberg data.

In New York, the S&P 500 climbed 0.3 percent yesterday as crude oil advanced for the first time in three days with a 1.5 percent increase.

Inpex added 1.8 percent to 748,000 yen, lifting a gauge of mining companies to the biggest gain among the Topix’s 33 industry groups. Mitsui O.S.K. Lines Ltd., which operates oil tankers, rose 2.1 percent to 584 yen.

Casio Computer Co., the maker of the world’s first waterproof mobile phone, surged 6.6 percent to 903 yen, the steepest advance in the Nikkei 225. The company is in talks with NEC Corp. and Hitachi Ltd. to merge their mobile-phone businesses by April, the Yomiuri reported. NEC rose 0.3 percent, and Hitachi gained 1.2 percent.

Casio owns 51 percent of the handset-production venture with Hitachi, which was set up in 2004.

Unemployment, Deflation

Shipments of mobile phones in Japan dropped by a fourth in June, marking a 12th month of declines, according to the latest data compiled by the Japan Electronics and Information Technology Industries Association.

Government reports released this morning weighed on the market as they rekindled concern rising unemployment and falling prices will hamper Japan’s economic recovery. The joblessness rate rose to a record 5.7 percent last month, the statistics bureau said. Consumer prices excluding fresh food declined 2.2 percent in July from a year earlier, the steepest drop on record, the bureau also said.

Meidensha slid 5 percent to 519 yen. GS Yuasa Corp., whose price was 138 times its estimated net income for this year, dropped 1.9 percent to 827 yen.

Obayashi fell 1.7 percent to 418 yen. Rival Okumura Corp. dropped 1.5 percent to 384 yen. Japan’s infrastructure spending amounted to 4.4 percent of gross domestic product last year, and the Democratic Party of Japan has vowed to slash public-works spending if it wins the election.

The Nikkei and Topix have risen and fallen on alternate days since Aug. 14, as prospects for the global economy remain hazy, said Shinkin’s Fujiwara.

“Opinions are divided among investors about the economic outlook, which is leading to this directionless market and pushing people to focus on individual shares with news,” Fujiwara said.

Nikkei futures expiring in September slipped 0.1 percent to 10,500 in Osaka and retreated 0.1 to 10,505 in Singapore.

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