Bloomberg News

Nikkei Fell Most in a Week Since March Amid U.S. Debt Deadlock

July 29, 2011

July 29 (Bloomberg) -- Japanese stocks slipped for a third day, sending the Nikkei 225 Stock Average to its biggest weekly decline since March, as U.S. lawmakers failed to strike a deal on raising the federal debt ceiling and Nintendo Co. slashed its profit forecast.

Nintendo plunged 12 percent. Sony Corp. sank 3.3 percent after slumping demand for televisions forced Japan’s biggest exporter of consumer electronics to cut its outlook for earnings. Nisshin Steel Co. led gains by makers of the material after saying profit will jump this year on demand from carmakers recovering from Japan’s March earthquake.

“Earnings at tech companies have been worse than expected,” said Kiyoshi Ishigane, a senior strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $84 billion. “Until the U.S. resolves the debt issue, investors are going to be cautious.”

The Nikkei 225 slid 0.7 percent to 9,833.03 at the 3 p.m. close in Tokyo, extending earlier losses after the yen gained against the dollar and the euro. For the week, the gauge declined 3 percent, the biggest drop since the period ended March 18. Stocks fell amid mixed earnings results from Japanese companies and as U.S. lawmakers fail to make progress on a deal to raise the nation’s debt ceiling and avoid a default. The broader Topix lost 0.8 percent today.

No Deal

The yen gained against the dollar and Japanese stocks fell further after the U.S. Congress today had another setback in efforts to strike a deal before an Aug. 2 deadline. Kevin McCarthy, the No. 2 Republican leader in the U.S. House of Representatives, said there will be no vote on Speaker John Boehner’s debt-limit plan tonight in Washington.

The Topix has slipped 3.8 percent from a post-earthquake high on July 8 as concern mounts the U.S. may default on its debt, driving down the dollar and weakening the earnings outlook for Asian exporters. For the month, the gauge has edged down 0.9 percent. Declines have been limited as companies including Canon Inc. and Fanuc Corp. reported better earnings amid a faster-than expected recovery from Japan’s March 11 earthquake.

Stocks fell today as some of Japan’s biggest makers of electronics slashed profit outlooks, even as the number of positive earnings surprises on the Topix for the first quarter exceeded disappointing results.

Sony, Nintendo

Sony lost 3.3 percent to 1,947 yen after the company cut its profit forecast 25 percent on slumping demand for televisions. The maker of Bravia TVs and PlayStation game consoles also said it expects Japan’s currency to appreciate. The company forecast the yen will trade at an average of 80 to the dollar, compared with a previous estimate of 83 yen.

Japan’s currency extended gains today, nearing a postwar record against the greenback. The yen reached 77.46 per dollar today, the strongest since touching 76.25 on March 17. Against the euro, the Japanese currency extended gains after Moody’s Investors Service said it may cut Spain’s credit rating. A stronger yen cuts the value of overseas income for Japanese exporters.

Nintendo tumbled 12 percent to 12,290 yen, the most since January 2009. The world’s biggest maker of game consoles slashed its profit forecast by 82 percent to 20 billion yen ($257 million) as falling demand for the new 3-D handheld player led it to cut the product’s price.

Competition, Quake Damage

Nintendo will reduce the price of the 3DS by 40 percent in Japan to 15,000 yen in the face of competition from Apple Inc.’s iPhone and online games played on Facebook Inc.’s service.

Nintendo declined the second-most on the Topix, following solar-cell maker Ulvac Inc., which sank 19 percent to 1,429 yen after saying quake damage may cause its first loss in two years.

Almost one-fifth of the 1,669 companies on the Topix reported results today, most after the market closed. Sixty- eight of 444 companies that have released results since July 11 beat analyst estimates for first quarter profit, while 45 missed expectations, according to data compiled by Bloomberg.

Among stocks that advanced today, Nisshin Steel rallied 8.8 percent to 160 yen after saying it expects profit to almost double to 21 billion yen this fiscal year. Steel demand will likely pick up as carmakers and other manufacturers recover from Japan’s record earthquake, it said.

Industrial production rose 3.9 percent last month and companies said they plan to increase output this month and next, Japan’s trade ministry said today. The forecasts suggest Japan’s energy shortage and government measures to limit electricity use aren’t crimping production.

“We’re not seeing much of an impact from the power-saving drive and that’s very positive,” said Takuji Aida, a senior economist at UBS AG in Tokyo. “This is good for the medium-term outlook.”

--Editors: Jason Clenfield, Sam Waite.

To contact the reporters on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net;

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.


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