Japan's Stocks Drop on U.S. Growth Concern; Softbank Declines

Patrick Rial

Aug. 28 (Bloomberg) -- Japanese stocks fell, led by exporters including Canon Inc., on concern profits will be curbed should the Federal Reserve raise U.S. borrowing costs further amid a slowdown in the world's largest economy.

``The risk for Japanese companies now lies with external demand,'' said Soichiro Monji, who helps oversee $47 billion as strategist at Daiwa SB Investments Ltd. in Tokyo. ``More rate increases by the Fed would be a risk for the U.S. economy together with the global economies.''

Softbank Corp., Japan's second-largest provider of high- speed Internet access, dropped after the Nikkei Financial Daily newspaper reported that the company's purchase of the Vodafone K.K. mobile phone unit resulted in more goodwill than tangible assets.

Benchmarks swung between gains and losses. The Nikkei 225 Stock Average dropped 106.94, or 0.7 percent, to 15,831.72 as of the 11 a.m. break in Tokyo, reversing a gain of as much as 0.4 percent. The broader Topix index fell 11.37, or 0.7 percent, to 1608.44. It earlier advanced as much as 0.2 percent.

Canon, the world's largest maker of copiers, slid 50 yen, or 0.9 percent, to 5,550. Toyota Motor Corp., the world's largest automaker by value, fell 30 yen, or 0.5 percent, to 6,220. Sony Corp., the maker of the PSP portable game console and Cyber-shot digital cameras, dropped 50 yen, or 1 percent, to 4,950.

In the U.S., existing home sales, which account for 85 percent of the housing market, fell to an annual rate of 6.33 million, the National Association of Realtors said last week. That figure trailed economists' forecasts of 6.55 million in a survey by Bloomberg News.

Slowdown, Interest Rates

The number of unsold homes at the end of July jumped to the highest since records began in 1999.

New home sales dropped 4.3 percent in July according to the Commerce Department. Economists surveyed by Bloomberg expected a 2.7 percent decline.

Concern that the pace of growth will slow was heightened on Aug. 22 when Federal Reserve Bank of Chicago President Michael Moskow said a decline in housing may pose a risk to the economy.

Moskow also raised the prospect that central bankers may have to increase borrowing costs to reduce inflation. The Fed left rates unchanged at 5.25 percent earlier this month after moving them higher 17 straight times over two years.

Interest-rate futures show traders see a 43 percent chance of another quarter-point boost from 5.25 percent by year-end.

Softbank fell 85 yen, or 4 percent, to 2,055, after losing 9.7 percent on Aug. 25. The purchase of Vodafone's Japanese unit in April resulted in 1.1 trillion yen of goodwill, or the excess purchase price above fair market value of net assets acquired under the purchase method of accounting, the Nihon Keizai newspaper said, citing Kazuko Kimiwada, the company's accounting manager. Softbank bought Vodafone for 1.8 trillion yen.

Paid Too Much?

Nicholas Spratt, an analyst at Lehman Brothers Holdings Inc. in Tokyo, raised the accounting issue when he reduced the 12- month price estimate on Softbank's shares to 900 yen from 1,125 yen in an Aug. 21 note to clients. Spratt cited an increase in debt and the possibility that the company overpaid for Vodafone.

``Entering telecommunications might have been a huge mistake for Softbank,'' said STB's Monji. ``The profitability of the business is far from certain.''

Nikkei 225 futures expiring in September lost 0.9 percent, to 15,830 in Osaka and declined 0.7 percent to 15,850 in Singapore.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net .

Last Updated: August 27, 2006 22:12 EDT

Sphere: Related Content

No comments: