Japanese Stocks Drop for Second Day After S&P Cuts U.S. Rating
August 08, 2011, 3:36 AM EDTBy Norie Kuboyama and Shani Raja
Aug. 8 (Bloomberg) -- Japanese stocks dropped, sending the Nikkei 225 Stock Average to its biggest two-day decline since March, after Standard & Poor’s Ratings Services cut the U.S. government’s credit rating, damping the outlook for Asia’s banks and exporters.
Mitsubishi UFJ Financial Group Inc., a large holder of U.S. bonds, slid 2.6 percent. Sony Corp., a maker of consumer electronics that gets about 40 percent of its revenue from the U.S. and Europe, sank 3.8 percent. Nissan Motor Co., Japan’s No. 3 carmaker by market value, lost 2.7 percent after the dollar weakened, cutting the earnings prospect for the exporter.
The Nikkei 225 fell 2.2 percent to 9,097.56 at the 3 p.m. close in Tokyo, extending losses even after the Group of Seven nations said in a statement they would take action to support markets. Only three stocks gained today on the 225-member gauge. The broader Topix lost 2.3 percent to 782.86.
The U.S. downgrade “has added another significant issue for the global economy and stock markets to overcome,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “The risks remain to the downside for economic growth, with a re-pricing of U.S borrowings likely to pose a higher cost of capital in the future.”
Stocks declined even after the Group of Seven nations sought to head off a collapse in investor confidence following the U.S. sovereign-rating downgrade and a sell-off in Italian and Spanish debt.
‘All Necessary Measures’
The G-7 will take “all necessary measures to support financial stability and growth,” the nation’s finance ministers and central bankers said in a statement today. Members agreed to inject liquidity and act against disorderly currency moves if necessary.
Today’s drop in Japanese stocks extended a rout that drove the Nikkei down 5.4 percent last week, the biggest weekly decline since the five-day period following Japan’s March 11 earthquake.
Standard & Poor’s lowered the U.S.’s AAA credit rating on Aug. 5 by one level, to AA+, after a deadlock in congress over raising the federal debt limit pushed the government to the brink of default. Lawmakers came to agreement on raising the government’s borrowing authority only hours before an Aug. 2 deadline.
‘American Policymaking’
“The effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and challenges,” the ratings service said in a statement.
Futures on the Standard & Poor’s 500 Index sank as much as 3.1 percent, signaling that U.S. shares will fall today, as investors weigh the impact of the credit-rating cut. The downgrade was announced after the markets closed on Aug. 5 in New York.
Banks holding U.S. bonds declined today in Tokyo. Mitsubishi UFJ Financial Group retreated 2.6 percent today to 372 yen. Sumitomo Mitsui Financial Group Inc., Japan’s second- largest publicly traded lender, dropped 2.2 percent to 2,310 yen.
Japanese stocks extended declines in the afternoon after plunges in the Shanghai Composite Index and South Korea’s Kospi index adding to investor anxiety. The Shanghai index fell as much as 4.9 percent, while the Kospi lost as much as 7.4 percent.
“The flight from risk assets is intensifying,” said Koichiro Nishio, a market analyst in Tokyo at SMBC Nikko Securities Inc. “Investors around the world are looking to reduce their equity holdings.”
Exporters Fall
Exporters fell after the yen appreciated. Sony declined 3.8 percent to 1,759 yen. Nissan slid 2.7 percent to 748 yen. Kyocera Corp., an electronic components maker that earns about a third of its revenue from the U.S. and Europe, retreated 2.3 percent to 7,500 yen.
The dollar fell to a record low against the Swiss franc and declined for a second day versus the yen. The U.S. currency depreciated to as low as 77.58 yen today in Tokyo, compared with 78.50 at the close of stock trading on Aug. 5, cutting the value of overseas income at Japanese companies when repatriated.
Ebara Corp., a pumpmaker, fell the most on the Nikkei, plummeting 18 percent to 362 yen. The shares declined the most since at least September 1974, according to Bloomberg data, after it said first-quarter profit fell 58 percent to 417 million yen ($5.4 million).
“We’re in for another stomach-churning week,” said Nick Maroutsos, a Sydney-based money manager and co-founder at Kapstream Capital, which oversees the equivalent of about $4 billion. “This is a life-changing event in many respects because no one has ever seen the U.S. have a AA-rated status. We’re going to see a lot of volatility this week.”
--With assistance from Satoshi Kawano in Tokyo and Lynn Thomasson in Hong Kong. Editors: Jason Clenfield, John McCluskey.
To contact the reporters on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.
