Japan Stocks Rise, Outweighing Deflation Concern; Nomura Climbs

By Masaki Kondo

Sept. 29 (Bloomberg) -- Japanese stocks rebounded from their biggest two-day drop in six months, outweighing concern falling prices will cut corporate revenue and hamper the nation’s recovery from recession.

Nomura Holdings Inc., which announced a record share sale last week, added 4.4 percent after losing 21 percent in the past two days. Toshiba Corp. gained 2.9 percent after posting its steepest two-day decline since March 31. Nitori Co., a retailer that cut prices by as much as 40 percent for more than 400 products in August, sank 4.2 percent after a government report showed Japan’s consumer prices dived at a record pace last month.

The Nikkei 225 Stock Average rose 0.9 percent to close at 10,100.20 in Tokyo. The broader Topix index drifted between gains and losses and finished up 0.1 percent at 904.00, with eight stocks falling for every seven that climbed. The indexes are this month’s worst performers among 89 global gauges tracked by Bloomberg.

“Japanese stocks have lagged behind their overseas counterparts and a further slump is unlikely,” said Mitsushige Akino, who manages the equivalent of $666 million at Ichiyoshi Investment Management Co. “Deflation is engulfing the country and the slump in Japan’s economy will likely worsen, pushing investors to sell companies depending on domestic demand.”

The Nikkei and Topix lost 5 percent in the previous two days, the most since March 31, on concern the dollar’s depreciation will eat into companies’ profits. Yesterday, Nikkei-listed shares traded at 39.3 times estimated net income for this year, the lowest level since July 16, according to data from Nikkei Inc., which compiles the gauge.

Losers Reign

The number of shares traded in Tokyo fell to the lowest since Sept. 15.

Nomura, Japan’s largest securities company, advanced 4.4 percent to 564 yen, breaking a nine-day losing streak and driving a measure of brokerages to the biggest gain among the Topix’s 33 industry groups. Toshiba, Japan’s biggest memory chipmaker, advanced 2.9 percent to 468 yen.

Six of the 10 groups with today’s steepest increases in the Topix were among the biggest decliners in the past two days.

“Short-sellers are unwinding their positions and causing today’s gains in equities,” said Akino. Short-sellers borrow shares and sell them in a bet that prices will fall, then seek to buy them back more cheaply and keep the difference as profit.

The dollar appreciated versus the yen to as much as 90.23 today from 88.24 yesterday, a level not seen since Jan. 23. A stronger dollar increases the value of overseas sales at Japanese companies when converted into yen.

Facing Reality

The U.S. currency was still weaker than the 94.85 yen estimated by Japanese businesses for this year, according to the Bank of Japan’s quarterly Tankan report released in July.

Nitori, the furniture retailer, dropped 4.2 percent to 7,540 yen. West Japan Railway Co., the nation’s third-largest rail operator, slid 4.7 percent to 323,000 yen. Tokyo Electric Power Co., Asia’s largest utility, lost 1.3 percent to 2,355 yen.

Japan’s consumer prices excluding fresh food fell at a record 2.4 percent in August from a year earlier, the statistics bureau said before markets opened. That matched the median estimate of economists surveyed by Bloomberg News.

“Bad numbers on consumer prices forced investors to face reality,” said Yoshihiro Ito, senior strategist at Okasan Asset Management Co., which oversees the equivalent of $8.2 billion. “Considering current exchange rates, people’s expectations for higher earnings are evaporating.”

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