Bloomberg News

Japanese Stocks Decline as Europe Downgrades Fuel Crisis Concern

January 16, 2012

Jan. 16 (Bloomberg) -- Japanese stocks fell the most in a month after Standard & Poor’s stripped France of its top credit rating and cut eight other European countries, fueling concern policy makers haven’t done enough to fight the debt crisis.

Mitsubishi UFJ Financial Group Inc., Japan’s top publicly traded bank, sank 2.7 percent. Canon Inc., a camera maker that depends on Europe for almost a third of its sales, slid 2.2 percent. Inpex Corp., the nation’s largest oil explorer by market value, fell 2.3 percent after crude prices declined. Mitsui O.S.K. Lines Ltd. led declines among shippers after a gauge of cargo rates dropped to an 11-month low.

“Europe’s crisis is gradually worsening,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., which oversees the equivalent of $68 billion. “The ratings company issued a warning to the Europe governments that their policies are only kicking the can down the road.”

The Nikkei 225 Stock Average fell 1.4 percent to 8,378.36 at the 3 p.m. close in Tokyo, the biggest drop since Dec. 15. The broader Topix lost 1.3 percent to 725.24. Stocks also slid as Europe’s leaders scrambled to restart stalled talks with Greece’s creditors on the size of losses in a proposed debt swap.

The Topix has declined 0.5 percent this year, compared with a 2.5 percent gain by the S&P 500 and a 1.9 percent increase by the Stoxx Europe 600 Index. Stocks in Japan’s broadest benchmark are valued at 15 times estimated earnings on average, compared with 12.3 times for the S&P 500 and 10 times for the Stoxx 600.

U.S. Futures Drop

Futures on the Standard & Poor’s 500 Index fell 1 percent today. The index lost 0.5 percent in New York on Jan. 13 before S&P said it cut France’s debt rating one level to AA+, with a negative outlook. Italy and Spain were cut two grades, while Germany, Europe’s biggest economy, had its rating affirmed.

“The market has been expecting downgrades of France and other European countries, but they can’t tell how much the downgrades have already been priced in, which will likely drag down stocks” said Norihiko Funatsu, a chief strategist in Tokyo at Okasan Securities Co.

Mitsubishi UFJ Financial Group lost 2.7 percent to 325 yen and Sumitomo Mitsui Financial Group Inc., Japan’s No. 2 publicly traded bank, fell 2.2 percent to 2,194 yen.

Attempts by European leaders to address economic woes haven’t “produced a breakthrough of sufficient size and scope to fully address the euro zone’s financial problems,” S&P said. The region continues to face tightening credit conditions among other problems, S&P said.

Exporters to Europe declined. Canon lost 2.2 percent to 3,280 yen. Sony Corp., which depends on Europe for a fifth of its sales, declined 2.3 percent to 1,297 yen.

The euro weakened for a second day, reaching an 11-year low versus the yen. The shared currency depreciated to 97.04 yen today, the lowest since December 2000.

‘Negative Impression’

“Exporters that depend on Europe can’t avoid taking an earnings hit from the weaker euro,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $104 billion. “The downgrades give a negative impression psychologically, but it’s unlikely the news will make the situation keep getting worse.”

Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week over the size of investor losses in a proposed debt swap, raising the threat of default. German Chancellor Angela Merkel and French President Nicolas Sarkozy will also meet as the European Central Bank warns governments against “watering down” a revamp of budget laws.

Machinery Orders Jump

Stocks fell today even after Japan’s machinery orders surged the most since Jan. 2008. Bookings, an indicator of future capital spending, rose 14.8 percent in November from a month earlier, the Cabinet Office said in Tokyo today. Economists predicted a 5.1 percent increase.

Energy companies declined. Inpex slid 2.3 percent to 504,000 yen. Japan Drilling Co., an offshore drilling contractor, dropped 2.2 percent to 2,177 yen.

Crude oil for February delivery fell 0.4 percent to $98.70 a barrel in New York on Jan. 13, the lowest settlement since Dec. 21. The London Metal Exchange Index of prices for six metals including copper and aluminum lost 0.3 percent, its first drop since Jan. 5.

Shipping companies declined the most among the 33 Topix industry groups after the Baltic Dry Index, a measure of shipping costs for commodities, sank 4.7 percent on Jan. 13 to the lowest close since Feb. 7, falling in each of the last 18 trading sessions.

Mitsui O.S.K. sank 3.9 percent to 247 yen. Smaller Kawasaki Kisen Kaisha Ltd. lost 3.8 percent to 126 yen. Nippon Yusen K.K., Japan’s top shipping line by sales, fell 2.8 percent to 175 yen.

--Editor: Jason Clenfield.

To contact the reporters on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net

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


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