Bloomberg News

Japan Stocks Decline of Euro Summit, Consumption Tax Vote

June 26, 2012

Japanese stocks fell a third day on concern European leaders will fail to come up with a solution to the debt crisis at a summit this week and before Japan’s lawmakers today voted on a consumption tax increase. The bill passed the lower house of parliament after close of market.

Makita (6986) Corp., a power-tool maker that gets almost half its sales in Europe, lost 2.1 percent. Honda Motor Co. (7267) slid 1.5 percent after a Chinese official said the government has no imminent plans to subsidize car purchases. Nippon Electric Glass (5214) Co. sank 7.8 percent after saying it won’t earn any profit in the first quarter.

The Nikkei 225 Stock Average (NKY) fell 0.8 percent to 8,663.99 at the 3 p.m. close in Tokyo. The broader Topix lost 0.9 percent to 738.89, with about two shares dropping for each that gained. Stocks also fell on a Sankei newspaper report that former Democratic Party of Japan leader Ichiro Ozawa may establish a new party to oppose doubling the 5 percent sales tax.

“Raising the tax will cool domestic demand, forcing the economy to depend more on overseas sales,” said Kiyoshi Ishigane, a Tokyo-based strategist at Mitsubishi UFJ Asset Management Co., which oversees about $70 billion. “Germany is resisting euro-area debt sharing, adding to uncertainty in Europe and making investors more inclined to sell shares.”

The legislation now moves to the opposition-controlled upper house, where passage is likely thanks to backing by the main opposition Liberal Democratic Party and New Komeito party. Prime Minister Yoshihiko Noda is struggling to overcome resistance within the DPJ and has vowed to stake his political career on boosting the levy to rein in record debt and soaring welfare costs in a country with the world’s oldest population.

Hardened Resistance

Stocks fell after Chancellor Angela Merkel hardened her resistance to euro-area debt sharing, setting Germany on a collision course with its partners at the summit starting on June 28. In other signs the crisis is worsening, Cyprus said it will seek a lifeline from the euro area’s firewall funds.

Moody’s Investors Service yesterday downgraded 28 Spanish banks, citing the country’s sovereign debt and rising losses on real estate loans. The New York-based rating company also cut ratings of 16 Spanish lenders on May 17.

Makita declined 2.1 percent to 2,720 yen. Nippon Sheet Glass Co., which gets almost 40 percent of its sales in Europe, sank 4.5 percent to 85 yen.

“There’s increasing concern that the EU summit won’t work out concrete measures to overcome the debt crisis,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “There has been no change in Germany’s resistance to euro-zone debt sharing

The Topix (MXAP) has fallen 15 percent from its peak on March 27 on concern the debt crisis is spreading and as growth in the U.S. and China slows. Stocks on the gauge are valued at 0.87 times book value, with a number below one meaning a company can be bought for less than the value of its assets.

Carmakers Drop

Carmakers declined after a Chinese official said the government has no imminent plans to introduce more stimulus policies to help revive vehicle demand in the world’s biggest auto market. Honda slipped 1.5 percent to 2,620 yen. Toyota Motor Corp., Asia’s biggest carmaker, slid 1.1 percent to 3,045 yen.

Nippon Electric Glass tumbled 7.8 percent to 448 yen, the most on the Nikkei 225, after cutting its net-income projection to breakeven in the quarter ending June 30 on a drop in the value of investment securities. The glassmaker had earlier forecast a profit of 500 million yen to 3.5 billion yen ($6.3 million to $44 million).

Among advancing stocks, Takashimaya Co. (8233) gained the most in the Nikkei 225, rising 2.6 percent to 590 yen after posting a 69 percent surge in first-quarter operating profit to 5.88 billion yen on rising revenue.

To contact the reporter 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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