Japanese Stocks Fall, Led by Banks After JPMorgan Lowers Stance

By Masaki Kondo and Kotaro Tsunetomi

Sept. 9 (Bloomberg) -- Japanese stocks fell for the first time in three days, led by banks after JPMorgan Chase & Co. lowered its view on the nation’s banking industry.

Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, lost 3 percent and smaller rival Sumitomo Mitsui Financial Group Inc. dropped 2.7 percent after JPMorgan cut its investment ratings on the stocks. Canon Inc., which gets 28 percent of its sales from the Americas, slid 2.8 percent after the dollar weakened against the yen.

“We’re seeing signs of an economic recovery but have yet to figure out how long and resilient the recovery will be,” said Naoteru Teraoka, who helps oversee about $16 billion at Chuo Mitsui Asset Management Co. “All the catalysts have run out and institutional investors are staying on the sidelines. We need a positive surprise to see a clear trend in the market.”

The Nikkei 225 Stock Average declined 0.8 percent to close at 10,312.14 in Tokyo. The broader Topix index fell 0.7 percent to 939.84, with twice as many stocks retreating as advancing. The Nikkei extended its decline in the afternoon as futures on the Standard & Poor’s 500 Index slid.

Investors are betting a recovery in profits will accelerate in 2010, helping to justify valuations for this year that are the highest among the world’s biggest equity markets. Nikkei- listed shares trade at 22.7 times next year’s estimated earnings, almost half the level for 2009, according to data compiled by Bloomberg.

Rising Joblessness

Mitsubishi UFJ fell 3 percent to 527 yen, its steepest drop since July 9, and Sumitomo Mitsui lost 2.7 percent to 3,610 yen. Katsuhito Sasajima, an analyst at JPMorgan, lowered his view on the banking industry to “slightly bearish” from “neutral,” citing the possibility that credit charges will disappoint the market. Sasajima, the No. 2 ranked analyst for the industry in Institutional Investor’s 2009 survey, cut his ratings on Mitsubishi UFJ and Sumitomo Mitsui to “neutral” from “overweight.”

Mitsubishi UFJ and Sumitomo Mitsui have consumer-finance affiliates whose operating profits fell by more than half in the April-to-June quarter. The nation’s joblessness rate jumped to a record 5.7 percent in July, a statistics bureau report showed last month.

“Rising unemployment is driving up non-performing loans, which may rattle investor confidence in the banking sector again,” said Hiroshi Sato, chief investment officer of GCSAM Co., a fund-management company in Tokyo. “Redundancies are cost cuts for corporations but translate into lower incomes for households.”

‘Stronger’ Recovery

The dollar depreciated versus the yen to as much as 92.04 overnight from 92.81 at yesterday’s close of stock trading in Tokyo. A weaker dollar reduces the value of overseas sales at Japanese companies when converted into their home currency.

Canon, the world’s biggest maker of digital cameras, slid 2.8 percent to 3,490 yen. Toyota Motor Corp., the world’s largest automaker and which gets 31 percent of its sales in North America, slid 1.8 percent to 3,800 yen. Makers of electronics and cars were the second- and third-heaviest drags on the Topix, following banks.

Inpex Corp., Japan’s largest oil explorer, rose 3.9 percent to 770,000 yen. Closest rival Japan Petroleum Exploration Co. added 1.9 percent to 4,830 yen. An index of mining companies that includes both stocks had the steepest increase among the 33 groups in the Topix. Crude oil leapt 4.5 percent yesterday, the most in three weeks.

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