Japan's Shares Drop on U.S. Housing Concerns; Canon, Honda Fall

Japanese stocks dropped, with the Nikkei 225 Stock Average falling for a fourth day, extending the longest streak of declines since early March.

Canon Inc. and Honda Motor Co. led losses on concern demand for their products will falter, curbing profit, amid signs the U.S. housing market is worsening and after the yen strengthened.

Commodities-related shares such as Mitsubishi Corp. dropped after prices of oil, copper, gold and other raw materials slumped.

``Current weakness in the market is attributable to outside factors, particularly concerns about the U.S. housing situation,'' hurting carmakers and consumer electronics stocks, said Soichiro Monji, who helps oversee about $47 billion at Daiwa SB Investments Ltd. in Tokyo. ``The weakness of the yen helped Japanese shares to perform well, but some of them are being sold as the yen has reversed course.''

Toshiba Corp. led gains by nuclear power-related companies after the Nikkei newspaper reported the company won a power plant construction project worth about 600 billion yen ($4.87 billion). Orders for nuclear power plants have been increasing globally as soaring raw material costs make the power generation method more attractive.

The Nikkei lost 133.08, or 0.7 percent, to 17,933.03 at the 11 a.m. break in Tokyo, a fourth day of losses and the longest string of declines since the five days ended on March 5. The Topix index fell 16.58, or 0.9 percent, to 1749.29. Carmakers and technology stocks accounted for one third of the broad benchmark's drop.

Canon, the world's biggest maker of digital cameras and printers, slid 140 yen, or 1.9 percent, to 7,240, falling the most since May 25. Honda, Japan's No. 2 automaker by sales, lost 60 yen, or 1.4 percent, to 4,340. Sony, the world's second- biggest consumer electronics maker, dropped 110 yen, or 1.7 percent, to 6,290.

Faltering Demand?

The Commerce Department said yesterday purchases of new homes in the U.S. fell in May, signaling demand is still faltering in the second year of the housing slowdown. Sales decreased 1.6 percent to an annual pace of 915,000 last month. Economists had forecast sales to slow to a rate of 924,000. Sales figures for April were revised 5.2 percent lower. Consumer confidence also dropped more than estimated.

``The U.S. housing market is looking bad,'' said Koshi Kumagai, a fund manager at BNP Paribas Asset Management in Tokyo which manages about $438 billion in assets globally. ``Global investors are now reassessing how much risk they're willing to take and that's causing shares to fall.''

Toshiba, Elpida Memory

Exporters also fell as the yen strengthened. Japan's currency climbed for a third day against the dollar, recently trading at 123.09 yen, after falling to a more than four-year low of 124.14 on June 22. The yen also gained against the euro for a third day to 165.51, from a record low of 166.94 last week.

A stronger yen reduces the value of Japanese exporters' sales in local currency terms and makes their goods less competitive.

``The Japanese yen might have hit a bottom,'' said Daiwa's Monji.

Measures of electronics and auto companies climbed 1.3 percent and 0.5 percent respectively last week, outpacing a 0.3 percent gain by the Topix benchmark.

Mitsubishi Corp., Japan's largest trading company, which generates the second-biggest proportion of its sales from selling crude and industrial fuel, lost 70 yen, or 2.1 percent, to 3,200. Inpex Holdings Inc., the biggest oil explorer, slumped 30,000 yen, or 2.6 percent, to 1.12 million. Sumitomo Metal Mining Co., the No. 1 nickel producer, tumbled 105 yen, or 3.9 percent, to 2,625.

A measure of oil explorers including Inpex fell 2.3 percent, the biggest drop among the 33 industry groups included in the Topix.

Nuclear Power Companies

Crude oil for August delivery retreated 2 percent to $67.77 a barrel in New York yesterday. A measure of six metals traded on the London Metal Exchange, including copper and zinc, slid 2.1 percent yesterday, the biggest drop in two weeks.

Toshiba, Japan's biggest maker of nuclear reactors in terms of power capacity, added 12 yen, or 1.2 percent, to 1,036. The company won a contract from NRG Energy Inc. to build two nuclear reactors near Houston, beating rival reactor suppliers General Electric Co. and Hitachi Ltd., the Nikkei reported. It will be Toshiba's first project as lead contractor outside Japan.

No final decision has been made and the company is still in talks with NRG Energy, Tokyo-based Toshiba spokesman Keisuke Ohmori said, declining to give details of the project.

Retail Sales Increase

Japan Steel Works Ltd., which makes steel for pressure vessels in nuclear reactors, surged 41 yen, or 2.3 percent, to 1,836. Mitsui Engineering & Shipbuilding Co., which constructs power plants, climbed 12 yen, or 1.8 percent, to 667.

Noritsu Koki Co., Japan's largest maker of compact photo processing machines, soared 295 yen, or 14 percent, to 2,445 after Morten Paulsen, an analyst at CLSA Asia-Pacific Markets in Tokyo, raised his rating on the shares to ``buy'' from ``underperform,'' citing the prospect of rapid earnings growth.

Daimaru Inc., the country's biggest supermarket operator, surged 66 yen, or 5 percent, to 1,383. Seven & I Holdings Co., Japan's largest retailer by sales, advanced 10 yen, or 0.3 percent, to 3,420. Domestic retail sales unexpectedly rose for the first time in eight months, the trade ministry said.

Nikkei futures expiring in September slid 0.7 percent to 17,960 in Osaka and Singapore.

source:bloomberg.com