Japan’s Topix Drops Most in Two Weeks on Yen, China

Feb 20, 2014 6:51 pm ET

(Corrects time element in final paragraph.)

Feb. 20 (Bloomberg) -- Japanese stocks fell, with the Topix index posting its biggest drop in two weeks, as the yen gained and a Chinese manufacturing gauge dropped to a seven-month low.

Daikin Industries Ltd., a maker of air conditioners that gets 18 percent of its revenue in China, lost 3.3 percent. Honda Motor Co., a carmaker that relies on North American for about half of its sales, slid 2.7 percent. A gauge tracking consumer lenders dropped 3.2 percent, leading declines among the Topix’s 33 industry groups.

The Topix sank 2 percent to 1,194.56 at the close in Tokyo, the biggest decline since Feb. 4, with more than nine stocks falling for each that gained. The Nikkei 225 Stock Average slid 2.1 percent to 14,449.18. Shares also fell after the International Monetary Fund signaled risks to global growth and Federal Reserve minutes indicated further stimulus cuts. The yen rose 0.4 percent to 101.89 per dollar.

“The Chinese economy is weak and the yen’s downtrend has stopped, leaving the market without positive catalysts,” said Hitoshi Asaoka, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s third-largest bank. “The IMF strongly warned of downside risks and called on developed nations not to remove stimulus quickly, but there’s no sign the Fed will slow down tapering at this point.”

China Manufacturing

The preliminary February reading of 48.3 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compares with January’s final figure of 49.5 and the 49.5 median estimate in a Bloomberg News survey of 17 economists. A number below 50 indicates contraction.

Companies that do business with China dropped. Daikin slid 3.3 percent to 5,635 yen. Hitachi Construction Machinery Co., which gets 12 percent of its sales from China, declined 3 percent to 1,940 yen.

The IMF said yesterday the global recovery is still weak. Rising political tensions from Ukraine to Thailand, China’s slowdown and the Fed’s stimulus tapering have resulted in falling stocks and currencies in emerging markets, it said.

Advanced economies must maintain accommodative monetary policy, with the Fed needing to pay particular attention to its communication over the gradual adjustment of its asset purchases, according to the IMF.

Stimulus Outlook

Futures on the Standard & Poor’s 500 Index declined 0.4 percent today. The equity measure fell 0.7 percent yesterday after Fed officials said in minutes of their January meeting that reduction of bond purchases should continue barring a significant change in the economic outlook. They also backed away from their commitment to raise interest rates if unemployment falls below 6.5 percent.

Exporters fell as the yen gained against all its 16 major counterparts. Honda lost 2.7 percent to 3,652 yen. Canon Inc., a camera maker that gets 81 percent of its revenue overseas, slid 1.7 percent to 3,087 yen.

Consumer lenders and shipping lines led declines among the Topix’s industry groups. Aeon Financial Service Co. lost 4.6 percent to 2,342 yen, the biggest slide since Aug. 28. Nippon Yusen K.K., Japan’s biggest shipping line by market value, fell 2.8 percent to 317 yen.

Nexon Drops

Nexon Co. fell 4.6 percent to 868 yen after the online-game maker’s price target was cut to 1,300 from 1,500 at Daiwa Securities Group Inc.

Shares also fell after data showed that Japan’s trade deficit widened to a record in January as a weaker yen pushed up import costs, weighing on Prime Minister Shinzo Abe’s campaign to drive a sustained recovery. The nation’s benchmark five-year yield slid to 0.175 percent, a level unseen since April. The 10- year yield declined to 0.580 percent, matching the lowest level since May 7.

The Topix declined 8.3 percent this year, the most among major developed markets. The Topix traded at 1.18 times book value, compared with 2.58 for the S&P 500 and 1.87 for the Stoxx Europe 600 Index yesterday.

--Editors: Sarah McDonald, Jim Powell