Japanese Stocks Tumble on Goldman U.S., Domestic Recession Call

Japanese Stocks Tumble on Goldman U.S., Domestic Recession Call

By Patrick Rial and Satoshi Kawano

Jan. 10 (Bloomberg) — Japanese stocks fell after Goldman Sachs Group Inc. said the domestic economy and that of the U.S., the world’s two largest, may be headed for recession, sparking concern company earnings will falter.

Mitsubishi UFJ Financial Group Inc. led banks lower after the Wall Street Journal said Citigroup Inc. and Merrill Lynch & Co. are seeking additional capital injections, increasing speculation the subprime fallout won’t be containable.

Toyota Motor Corp. fell to the lowest since July 2006. The leading index, Japan’s broadest indicator of future economic activity stalled for a fourth month.

Real-estate companies slumped after Credit Suisse Group said U.S. subprime-mortgage losses may prompt overseas investors to sell their property holdings in Japan.

Goldman's report highlighting the increasing chances of a recession, as well as the leading index's poor showing, indicates the outlook for external and internal demand is nonexistent,'' said Hiroaki Osakabe, who helps oversee $365 million at Chiba-Gin Asset Management Co. in Tokyo. The Nikkei 225 Stock Average slumped 211.05, or 1.5 percent, to 14,388.11 at the close of trading in Tokyo, the lowest since June 2006. The broader Topix index dropped 22.93, or 1.6 percent, to 1,401.36. The benchmarks both snapped two days of advances. Semiconductor-related shares gained after Tokyo Electron Ltd., the world's second-largest supplier of chip-making equipment, said orders rose 16 percent more than it had forecast last quarter. U.S., Japan Recessions Mitsubishi UFJ, the nation's largest publicly traded lender, dropped 23 yen, or 2.2 percent, to 1,024. Toyota, the world's biggest automaker by value, declined 150 yen, or 2.6 percent, to 5,660. NTT DoCoMo Inc., Japan's largest mobile-phone operator, lost 5,000 yen, or 2.7 percent, to 183,000. Japan's economy has a 50 percent chance of slipping into a recession due to the deterioration in the U.S., Tetsufumi Yamakawa, Goldman's chief economist in Tokyo, wrote in a note to clients released today. Tamakawa cut his 2008 estimate for growth in the world's second-largest economy to 1 percent from 1.2 percent. The U.S. economy may already be in recession, Goldman's chief U.S. economist Jan Hatzius wrote in a note to clients yesterday. A December jump in the jobless rate to 5 percent tipped the balance in favor of an economic contraction by signaling the longest consumer-spending expansion on record will come to end this year, he wrote. Citigroup and Merrill Lynch, which have already received capital infusions from Asian and Middle Eastern sovereign wealth funds, may get a total of $14 billion in new capital, the Wall Street Journal said. Next week, the two banks will probably report additional losses totaling as much as $25 billion linked to mortgage investments, the Journal said. Real Estate Slump Japan's leading index held at 10 percent in November, matching economist estimates. A reading of below 50 percent signals slower growth in the next three to six months. Sumitomo Realty & Development Co., Japan's third-largest developer, slumped 140, or 5.3 percent, to 2,480, the lowest since February 2006. Mitsubishi Estate Co., Japan's biggest property developer by market value, fell 140 yen, or 5.7 percent, to 2,330. Urban Corp., which specializes in real estate securitization, dropped 102 yen, or 7.1 percent, to 1,344. The Topix Real Estate Index dropped 4.4 percent, the second-worst performance among the 33 industry groups included in the benchmark.Foreign investors who actively invested in Japanese real estate could decide to sell,’’ Yoji Otani, an analyst at Credit Suisse, wrote in a note to clients. In 2008, we are likely to see a situation in which only real estate firms with a genuine understanding of real estate survive, for a realignment of the industry and weaker firms forced out.'' Chip Equipment Orders Japanese real estate investment trusts have curbed their appetite for buying property as stricter lending and falling share prices have limited their access to new funds, the Nikkei newspaper reported. About 48 investment funds are scheduled to dissolve this year and if there are no buyers for the properties, that could lead to dangerous fire sales, according to the report. Tokyo Electron rose 160 yen, or 2.6 percent, to 6,230. The company said yesterday it received orders valued at around 198 billion yen ($1.8 billion) in the three months ended Dec. 31 for equipment to make chips and flat panels, compared with a November estimate of 170 billion yen. The company's shares dropped by a third in the past six months to yesterday as falling prices for memory chips and a worsening outlook for the computer market prompted investors to sell. Inpex Project Delay? NEC Electronics Corp., the country's third-biggest chipmaker, gained 55 yen, or 2.4 percent, to 2,375. Advantest Corp., the world's biggest maker of equipment used to test computer memory chips, rallied 50 yen, or 1.8 percent, to 2,845. Elpida Memory Inc., Japan's largest maker of computer memory chips, fell 42 percent in the last six months, while Advantest tumbled by almost a half. Inpex Holdings Inc. plunged 90,000 yen, or 7.1 percent, to 1.17 million, the steepest decline since Aug. 17. Japan's biggest oil explorer said the budget and schedule for its proposed Ichthys liquefied natural gas project in Australia areunder review,’’ signaling it may cost more and start later than planned.

Nikkei futures expiring in March slipped 1.4 percent to 14,400 in Osaka and dropped 1.6 percent to 14,365 in Singapore.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net ;
Satoshi Kawano in Tokyo at Skawano1@bloomberg.net
Last Updated: January 10, 2008 02:24 EST

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