Japan Stocks Drop Most in 21 Years as Recession Concerns Mount

By Masaki Kondo
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Oct. 16 (Bloomberg) -- Japanese stocks plunged the most in two decades as a drop in U.S. retail sales pointed to a deepening recession and Prime Minister Taro Aso reinforced concern a bank bailout will fail to stem a rout in global markets.

Honda Motor Co., which gets more than half its profit from North America, sank 10 percent, while Nintendo Co. tumbled by its daily limit in Osaka after retail receipts in the U.S. fell for a third month. JFE Holdings Inc., Japan's second-biggest steelmaker, declined 15 percent after UBS AG cut its price estimate by 64 percent. Oil explorer Inpex Corp. lost 14 percent, the most on record, after crude slid to the lowest in a year.

``The American spending spree we've seen in the past few years has totally evaporated,'' said Yoshinori Nagano, a Tokyo- based senior strategist at Daiwa Asset Management Co., which manages $96 billion. ``The earnings outlook for auto manufacturers and electronics makers is particularly harsh.''

The Nikkei 225 Stock Average declined 1,089.02, or 11 percent, to close at 8,458.45 in Tokyo, the second-steepest plunge in its 59-year history. The broader Topix index fell 90.99, or 9.5 percent, to 864.52. Both gauges sank the most since October 1987. The Osaka Securities Exchange temporarily halted trading in Nikkei futures after a plunge in shares triggered a circuit breaker.

Sales at U.S. retailers fell 1.2 percent in September, the most since August 2005 and extending a drop to a third month, the first time that's happened since 1992. That coincided with the Federal Reserve's release of its Beige Book report, which said economic activities weakened last month throughout the country.

`Insufficient' Plan

In New York, the Standard & Poor's 500 Index had its steepest drop since the crash of 1987. The drop almost erased gains on Oct. 13 when the market climbed the most since the 1930s on speculation a $250 billion U.S. government plan to support banks will ease the credit crisis.

``People think the $250 billion plan is insufficient and that's why markets are falling,'' Aso told lawmakers in parliament in Tokyo today. If the U.S. doesn't accelerate plans to support banks, it risks ``paying a higher price,'' Aso said.

Honda lost 10 percent to 2,115 yen, while Toyota Motor Corp., Japan's biggest automaker, slumped 9.3 percent to 3,310 yen. Nintendo, which generates 90 percent of its revenue outside of Japan, retreated 10 percent to 34,550 yen on the Osaka Securities Exchange, and Sony Corp., the world's second-biggest maker of consumer electronics, dived 13 percent to 2,320 yen.

Japanese stocks finished their worst week ever on Oct. 10 and rose by a one-day record on Oct. 14 after central banks announced a $2 trillion push to prop up financial markets.

Steel Demand

JFE plunged 15 percent to 2,075 yen, while Nippon Steel Corp., the world's second-biggest maker of the alloy, fell 9.4 percent to 300 yen. Kobe Steel Ltd. slid 9.4 percent to 154 yen. UBS lowered its investment ratings on the steelmakers to ``neutral'' from ``buy'' and cut 12-month price estimates on the companies, with JFE's reduced to 2,600 yen from 7,200 yen.

``In fiscal 2009, nationwide crude steel output should see the first full-blown correction since fiscal 1998 on deterioration in domestic and overseas supply and demand,'' UBS analyst Atsushi Yamaguchi wrote in a report yesterday.

Inpex, Japan's largest oil and gas explorer, retreated 14 percent to 602,000 yen. Japan's four biggest trading companies by value sank by the bourse-imposed daily limit. Mitsubishi Corp., which derives half its profit from commodities, sank 15 percent to 1,677 yen, and Mitsui & Co. fell 17 percent to 978 yen. Sumitomo Corp. tumbled 12 percent to 750 yen, while Itochu Corp. sank 18 percent to 470 yen.

Emerging Economies

Crude oil for November delivery extended its drop to a third day today, falling as much as 3.3 percent to $72.10 a barrel in New York, the lowest price since August 2007. A $1 change in the price of a barrel of crude alters Mitsubishi's annual net income by 1 billion yen ($10 million) and Mitsui's by 1.8 billion yen, according to Mitsubishi UFJ Securities Co.

``With the U.S. economy worsening to this degree, emerging economies that rely on American sales will inevitably suffer,'' said Yoshihiro Ito, a senior strategist with more than 40 years experience at Okasan Asset Management Co., which oversees about $9.3 billion in Tokyo. ``I've never experienced these sorts of sell-offs.''

Komatsu Ltd., the world's second-biggest maker of earthmoving equipment, plummeted 15 percent to 1,167 yen, while rival Hitachi Construction Machinery Co. plunged 18 percent to 1,399 yen. Komatsu gets 40 percent of its revenue from such regions as China, Southeast Asia and Africa.

Nikkei futures expiring in December retreated 13 percent to 8,250 in Osaka and slumped 12 percent to 8,290 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
Last Updated: October 16, 2008 03:54 EDT

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