Japan Stocks Drop on Stronger Yen, Concern Over Bank Stability

By Masaki Kondo

Sept. 14 (Bloomberg) -- Japanese stocks fell, sending the Topix index to its lowest level in almost seven weeks, after the yen appreciated against the dollar and on concern the global banking system has yet to stabilize.

Canon Inc., which gets 28 percent of its sales from the Americas, dropped 3.4 percent. Honda Motor Co., Japan’s No. 2 carmaker, retreated 3 percent. The yen appreciated to 90.21 to the dollar, while manufacturers are expecting about 95 yen. Mizuho Financial Group Inc. dropped 2 percent after Nobel Prize- winning economist Joseph Stiglitz said the problems of banks are bigger than they were before the collapse of Lehman Brothers Holdings Inc.

“The current exchange rate will adversely affect companies that base their forecasts on 95 yen per dollar,” said Yoshinori Nagano, a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $95 billion. “There aren’t a lot of players in the market and that amplifies declines and gains in equities.”

The Nikkei 225 Stock Average dropped 2.3 percent to close at 10,202.06 in Tokyo. The broader Topix index lost 1.7 percent to 934.05, its lowest close since July 29. Almost six stocks fell for each that rose.

The number of shares traded in Tokyo has stayed below the 12-month average in all but two of the past 30 days. Investors stayed on the sidelines on concern a 45 percent rally in the Nikkei since March outpaced the outlook for company earnings. Stocks on the Nikkei trade at 43 times their estimated earnings for this year, the highest level among the gauges of the world’s three biggest markets, according to data compiled by Bloomberg.

Stronger Yen

The yen appreciated against the dollar to as much as 90.21 today, a level not seen since Feb. 12. A stronger yen reduces the value of overseas sales at Japanese companies when converted into their home currency. Japan’s large manufacturers expect the yen to trade at an average of 94.85 this year, according to the Bank of Japan’s most recent quarterly Tankan survey.

Canon, the world’s biggest maker of digital cameras, slid 3.4 percent to 3,450 yen. Honda, which gets 47 percent of its sales in North America, dropped 3 percent to 2,780 yen. Makers of electronics and cars were the biggest drags on the Topix, followed by banks.

“Even a slight appreciation of the yen has an impact on earnings,” said Daisuke Shimazu, an investment manager at Sumitomo Trust Banking Co. “There is a limit to cost cuts.”

One Year

Mizuho, Japan’s No. 2 listed bank, slid 2 percent to 200 yen and was the most actively traded stock. Market leader Mitsubishi UFJ Financial Group Inc. fell 1.7 percent to 537 yen. Stiglitz said in a Bloomberg TV interview yesterday that financial companies that are too big to fail have become even bigger and the problems are worse than they were in 2007 before a global financial crisis that began in 2008.

Tomorrow is the one-year anniversary of Lehman’s bankruptcy filing, which accelerated the freezing of credit markets and helped drag the global economy into its worst slowdown since World War II. Losses from the credit crisis at the world’s biggest financial institutions since the start of 2007 have swelled to more than $1.6 trillion.

“Financial companies are getting bigger to survive, resulting in fewer players in the industry,” said Daiwa Asset’s Nagano. “The collapse of one bank will have a much bigger impact on the global financial system than before.”

Japan Airlines Corp. soared 8 percent to 176 yen and was the biggest winner on the Nikkei. American Airlines Inc. may buy a stake in the company, people familiar with the plan said. Japan Airlines, which has received three government bailouts since 2001, is also discussing possible stake sales to Delta Air Lines Inc. and Air France-KLM, people familiar with those negotiations have said.

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