Japanese Stocks Decline as Yen Strengthens to Eight-Month High

By Masaki Kondo

Sept. 28 (Bloomberg) -- Japanese stocks declined after the yen appreciated to an eight-month high against the dollar and as Mitsui O.S.K. Lines Ltd.’s wider-than-forecast loss raised concern other shipping companies will also disappoint investors.

Honda Motor Co., which gets 47 percent of its sales in North America, slid 5 percent after the yen strengthened to as much as 88.24. Mitsui O.S.K., Japan’s No. 2 shipping company, tumbled 5.4 percent. Nomura Holdings Inc. extended its drop after announcing a record share sale and Merrill Lynch & Co. recommended underweighting Japan’s brokerages.

“The expected V-shaped recovery in earnings next year may become a fantasy,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which oversees the equivalent of $4 billion. “Should the yen stay stronger than 90, current stock levels will be seen as pricy.”

The Nikkei 225 Stock Average dropped 2.5 percent to close at 10,009.52 in Tokyo, after falling to as low as 9,971.05 in its first drop below 10,000 since July 24. The broader Topix index lost 2.2 percent to 902.84, the lowest close since July 21. Japanese equities continued to decline even after Finance Minister Hirohisa Fujii said people are wrong to think that he’s in favor of a stronger yen.

The yen appreciated to as much as 88.24 today, a level not seen since Jan. 23, on speculation Japan won’t intervene to curb gains in the currency. A stronger yen reduces the value of overseas sales at Japanese companies when converted into their home currency.

Valuations Concern

The yen’s appreciation raised doubt that companies can meet their profit forecasts. Businesses on the Topix projected a 50 percent jump in pretax profit for this year, according to a report from Shinko Research Institute Co. The Japanese currency has strengthened by more than 6 yen per dollar since the report was released on Aug. 17.

The Topix-listed shares trade at 19.9 times estimated net income for 2010, according to data compiled by Bloomberg. This compares with 13.9 times for the Standard & Poor’s 500 Index in the U.S. and 12.5 times for Europe’s Dow Jones Stoxx 600 Index.

Honda, Japan’s No. 2 automaker, slumped 5 percent to 2,675 yen. Nintendo Co., which makes the Wii game machine and counts the Americas as its biggest market by sales, slid 3.8 percent to 23,110 yen in Osaka trading.

Speaking at a forum co-hosted by Bloomberg in Tokyo today, Finance Minister Fujii said he “never said I will leave the yen to strengthen” and that he didn’t necessarily accept gains in the currency. Since coming to office this month, Fujii has said he doesn’t support a “weak yen.”

Shipping Lines

Mitsui O.S.K. dived 5.4 percent to 521 yen, the lowest close since April 8. The company said Friday that its operating loss was estimated to be almost three times wider than its forecast in the six months to Sept. 30. Fuel and terminal costs increased more than projected, the company said in a preliminary earnings report.

Smaller rival Kawasaki Kisen Kaisha Ltd. declined 7.3 percent to 343 yen, the sharpest drop since March 30. A gauge of shipping lines posted the biggest retreat among the Topix’s 33 industry groups.

The Baltic Dry Index, a measure of shipping costs for commodities, has halved its value from this year’s high on June 3 as demand for resources weakened.

“Even such a competitive company as Mitsui O.S.K. is suffering, which shows how weak the shipping market is,” Shinkin’s Fujiwara said.

Nomura, Japan’s biggest brokerage which announced a record $5.7 billion share sale last week, plummeted 5.8 percent, adding to a 16 percent slide on Sept. 25. The company extended its decline to a ninth day.

Takefuji Corp., a consumer lender, lost 11 percent, and Orix Corp., Japan’s biggest non-bank financial company, fell 4.6 percent. Merrill Lynch downgraded Japan’s brokerage and consumer-finance industries to “underweight” from “neutral,” citing a weakening stock market and possible tighter regulations. “Underweight” means to hold less of a security than would be indicated in an index.