Nikkei at 1-week closing low, exporters hit by firmer yen

Mon Sep 24, 2012 2:33am EDT

* Renesas jumps 31 percent, govt mulls rescue
    * Defensives in demand, global growth still a concern

    By Dominic Lau
    TOKYO, Sept 24 (Reuters) - The Nikkei share average fell to
a one-week closing low on Monday as a firmer yen added to woes
for automakers and other exporters, which have been under
pressure from growing tension between Japan and China.
    Concerns about global growth weighed on the market even
though major central banks have launched fresh stimulus measures
to bolster their economies. Some analysts now worry that the new
round of stimulus from the Federal Reserve suggests that the
U.S. economy is in worse shape than many had feared.
    Struggling chipmaker Renesas Electronics Corp 
jumped 31 percent after two sources said a Japanese government
fund was part of a consortium including Toyota Motor Corp
 considering a bailout of the company, countering a bid
by private equity firm KKR. 
    The Nikkei eased 0.5 percent to 9,069.29 points ,
supported by the 200-day moving average at 9,016.86, while the
Nikkei China 50, made up of Japanese firms with heavy
exposure to the world's second largest economy, shed 1.3
percent.
    "People are rather cautious," a trader at a foreign bank
said. "There is a lot of media coverage on the China-Japan
dispute. That's also playing into it."
    "In 2005 (when the last major dispute erupted), the sell-off
actually came in the second week, not the first week. People are
just worried about history repeating itself and this thing seems
a little bit more serious," he said. 
    Among exporters, Canon Inc sagged 3.9 percent,
while Nissan Motor Co, which traders said earns about
25 percent of its net profit from China, ahead of Honda Motor
Co's 16 percent and Toyota's 21 percent, dropped 2.7
percent. Toyota lost 1.6 percent and Honda shed 1.8 percent. 
    The yen was trading at 78.060 yen to the dollar on
Monday, up from Friday's low of 78.379.
    Bank of America Merrill Lynch said Japanese carmakers saw a
90 percent drop in showroom traffic and a 60 percent fall in
sales in the southern Chinese province of Guangdong, the largest
market for Japanese brands, since the start of the anti-Japanese
protests.
    "Dealers believe the current negative sentiment on
Japanese-branded cars could be longer than the previous island
dispute, as Japanese-branded cars' promotional campaigns and TV
commercials have been temporarily suspended," the brokerage said
in a note.
    "Some customers are being instructed not to buy Japanese
cars to avoid some difficulties - e.g. some gasoline stands are
refusing to supply fuel to Japanese-branded vehicles."    
    Construction machinery makers Komatsu Ltd and
Hitachi Construction Machinery Co Ltd fell 1.6 and 1.2
percent, respectively after U.S. rival Caterpillar Inc's 
reported a 13 percent sales increase for the June-through-August
period, slightly down from the 14 percent increase for the
May-through-July period.
    Both Komatsu and Hitachi Construction Machinery, which have
significant exposure to China, have fallen at least 11.3 percent
since Aug. 20 on concerns of slowing growth in China.
    Hidehiro Tomioka, head of equity investment at Manulife
Asset Management in Tokyo, said the impact of the China-Japan
row would depend on how long it would last.
    "If it were to continue, say, a couple of months, or longer,
six months for instance, I think the impact to the macro economy
and corporate earnings will not be small," he said.
    "Right now I am slightly cautious. I would stay away from
very highly affected areas like airlines for instance. For the
others, I am watching the development."    
    
    DEFENSIVES SWITCHING
    However, investors switched into defensive stocks, which
have a relatively lower correlation to the health of the global
economy, supporting the market. The utilities sector 
rose 1.2 percent and the telecommunications sector 
gained 0.8 percent.
    "Nine thousand is a reasonably important technical level.
Our flow today is defensive ... beta (cyclical stocks which tend
to have high beta, or volatility) adjust is pretty heavy to the
sellside," another trader said.
    The broader Topix index slipped 0.4 percent to
753.68, with 1.41 billion shares changing hands, down f rom last
week's average of 1.85 billion.
    The Nikkei is up 7.3 percent so far this year,
underperforming a 16.1 percent rise in the U.S. S&P 500 
and a 12.8 percent gain in the pan-European STOXX Europe 600
 index.
    Japanese equities now have a similar valuation to European
shares, with a 12-month forward price-to-earnings ratio of 11.1,
versus STOXX Europe 600's 11 and S&P 500's 12.9, according to
Thomson Reuters Datastream.
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