Japan Stocks Fall on Bank Earnings Concern; Tiremakers Jump

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By Masaki Kondo

Dec. 5 (Bloomberg) -- Japan stocks fell, extending a weekly loss, as a dimmer earnings outlook for lenders prompted Goldman Sachs Group Inc. to cut price targets on the nation’s biggest banks, overshadowing benefits to manufacturers from oil’s decline.

Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. Japan’s biggest listed banks, dropped more than 5 percent, driving a gauge of lenders to a two-week low. Toyo Tire & Rubber Co., Japan’s fourth-largest tiremaker, surged 8 percent after crude sank to the lowest level in almost four years. Orix Corp. erased an 11 percent plunge to rise 0.5 percent after saying it asked authorities to investigate “ill-founded” rumors.


“Earnings at financial companies will inevitably worsen. You can’t rule out the possibility that smaller players will fail,” said Naoteru Teraoka, who helps oversee $21 billion at Chuo Mitsui Asset Management Co. in Tokyo. “Higher oil prices have been the main cause of inflation, so their decline is positive in that it lowers costs for manufacturers.”

The Nikkei 225 Stock Average swung between gains and losses at least 13 times, and closed down 6.73, or 0.1 percent, to 7,917.51 in Tokyo. The broader Topix index slipped 2.86, or 0.4 percent, to 786.02. The Nikkei posted a 7 percent weekly drop, the biggest since the five days ended Oct. 24, while the Topix lost 5.9 percent.

The Nikkei has tumbled 48 percent in 2008, set for its worst year on record, as the collapse of the American mortgage market and ensuing credit crises sparked the first simultaneous recession in the U.S., Japan and Europe since World War II. Japan’s three biggest banks in October cut full-year profit targets by more than half on rising bad-loan costs.

Shifting Impact

Mitsubishi UFJ slumped 5.4 percent to 435 yen, and closest rival Mizuho lost 6.7 percent to 210,700 yen. No. 3 Sumitomo Mitsui Financial Group Inc. declined 3.3 percent to 296,000 yen. Fukuoka Financial Group Inc., Japan’s second-largest regional bank by assets, dived 5.6 percent to 288 yen. The Topix Banks Index sank to the lowest since Nov. 20 and led declines among industry groups.

“Banks revenues continue to deteriorate, and the impact of macro environment worsening is shifting from the P&L to the balance sheet,” Goldman wrote in a report dated yesterday. The brokerage cut 12-month price estimates on Mitsubishi UFJ, Mizuho and Sumitomo Mitsui by as much as 55 percent, and lowered Fukuoka’s rating to “sell” from “neutral.”

Daiwa Securities Group Inc., Japan’s second-largest brokerage, soared 7.7 percent to 461 yen, while larger rival Nomura Holdings Inc. gained 4.1 percent to 611 yen. Goldman raised its rating on the brokerage industry to “neutral” from “cautious,” citing “little downside risk.”

‘Positive Side’

Oil has fallen 70 percent from a record $147.27 a barrel on July 11 as expectations evaporated that demand in emerging markets would make up for a slowdown in developed countries. Merrill Lynch & Co. commodity strategist Francisco Blanch yesterday said oil may sink below $25 a barrel next year if the global recession spills over into China.

Toyo Tire & Rubber Co. gained 8 percent to 175 yen, while Bridgestone Corp., the world’s biggest tiremaker, added 1.5 percent to 1,376 yen, ending a four-day slide. Tokai Rubber Industries Ltd. climbed 3.7 percent to 675 yen.

About 60 percent of the material used in tires is oil based, according to the Japan Automobile Tyre Manufacturers Association. Crude oil for January delivery fell 6.7 percent yesterday to $43.67, the lowest settlement price since January 2005.

“It’s high time we thought about the positive side of falling oil prices,” Yoshinori Nagano, a senior strategist at Tokyo-based Daiwa Asset Management Co., which manages about $96 billion, said in an interview with Bloomberg Television.

Rumor Investigation

Orix, Japan’s largest non-bank financial company, added 0.5 percent to 4,400 yen after having lost more than a quarter of its value in the past three days. Some major institutional investors are spreading ill-founded rumors that are affecting the company’s share price, Orix spokesman Ataru Yoshida said today. The company requested an investigation by the Securities Exchange and Surveillance Commission, Orix said in a statement.

Chugai Pharmaceutical Co., the Japanese unit of Roche Holding AG, plunged 8.3 percent to 1,469 yen, leading declines on the Nikkei. U.S. regulators delayed their decision for a second time on whether to approve the company’s rheumatoid arthritis drug Actemra.

Nikkei futures expiring in December added 1.3 percent to 7,980 in Osaka and slumped 0.6 percent to 7,970 in Singapore.

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

Last Updated: December 5, 2008 02:22 EST