Japanese Stocks Decline as Earnings Damp Rally Enthusiasm

By Patrick Rial and Toshiro Hasegawa

Aug. 7 (Bloomberg) -- Japanese stocks declined after slumping earnings at Konica Minolta Holdings Inc. and Kubota Corp. fueled concern a three-week rally made stocks too expensive relative to the outlook for profits.

Konica plunged 9.8 percent after the maker of printers and office equipment said earnings were almost wiped out, prompting Nomura Holdings Inc. to reduce its investment rating. Kubota, Japan’s largest maker of farm machinery, slumped 6.9 percent. Toyota Motor Corp., which gets more than a fourth of sales in North America, lost 2.9 percent. A report today is forecast to show U.S. joblessness climbed to the highest since 1983.

“We need to see more earnings revisions come through in order for the market to push much higher,” said Fujio Ando, a fund manager at Tokyo-based Chibagin Asset Management Co. “One could say stocks are fully priced already for the positive results we’ve had.”

The Nikkei 225 Stock Average declined 104.54, or 1 percent, to 10,283.55 at the 11 a.m. break in Tokyo. The broader Topix index retreated 1.2 percent to 946.09, with four times as many stocks falling as rising.

The Topix gained 12 percent from July 13 to yesterday as higher-than-estimated earnings outnumbered negative surprises by 2-to-1, according to data compiled by Bloomberg. Prices on the main board of the Tokyo Stock Exchange rose to 37 times estimated earnings, compared with an average of 27 times since 2003.

For the week, the Nikkei has lost 0.7 percent, while the Topix has declined 0.4 percent, breaking a three-week streak. In New York, the Standard & Poor’s 500 Index slipped 0.6 percent to 997.07 yesterday as JPMorgan Chase & Co. downgraded health-care stocks.

Konica, Ricoh, Kubota

Konica tumbled 9.8 percent to 894 yen, the steepest decline in the Nikkei 225. The company reported a 98 percent slide in net income yesterday. Nomura cut the stock to “neutral” from “buy,” saying falling prices for film used on panels and shrinking market share for color copiers have clouded the outlook for an earnings recovery.

Ricoh Co., Japan’s second-largest office-equipment maker, dropped 3.7 percent to 1,222 yen.

Kubota dropped 6.9 percent to 759 yen. The company, whose shares soared as much as 153 percent since Oct. 27, reported a 72 percent slide in first quarter net income.

“Many investors have been bullish on the stock, particularly due to growth prospects in Asia,” Shinji Kuroda, an analyst at Credit Suisse Group AG, wrote in a report. Given the weaker-than-estimated sales growth in China and Thailand, “we expect profit-taking opportunities ahead.”

Yamada Denki

Yamada Denki Co., Japan’s largest electronics retailer, sank 6.3 percent to 5,790 yen after JPMorgan Chase & Co. lowered the stock to “neutral” on the view that the shares now look expensive and the benefits of government subsidies are already reflected in the price. The company reported a 30 percent increase in first-quarter earnings yesterday.

Toyota, the world’s biggest automaker, dropped 2.9 percent to 4,010 yen, and smaller rival Honda Motor Co. lost 2.6 percent 3,030, the two heaviest drags on the Topix. Automakers declined even as the U.S. Congress gave final approval to an emergency measure adding $2 billion to the “cash-for-clunkers” auto- purchase program after the initial $1 billion was drained in less than a week.

The Labor Department’s report on unemployment, due today at 8:30 a.m. New York time, is forecast to show an increase to 9.6 percent, the highest level since 1983. The number of Americans filing claims for joblessness benefits last week fell to 550,000, less than economists predicted, according to data released yesterday, a sign some employers have stopped paring staff.

Daicel Chemical Industries Ltd., a Japanese maker of air- bag inflators, rose 3.2 percent to 578 yen after cost cuts helped the company boost its profit forecast.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.