November 8, 2012 / 3:20 AM / in 5 years

Nikkei drops to 3-week low on machinery data, yen strength

* Japan machinery data increases recession fears
    * US fiscal cliff, a strong yen, earnings also weigh
    * Oki Elec, Citizen Hldgs slide after cutting guidance

    By Ayai Tomisawa
    TOKYO, Nov 8 (Reuters) - The Nikkei stock average fell 1.5
percent to a three-week closing low on Thursday, as
worse-than-expected domestic machinery orders figures increased
concerns that Japan's economy was slipping into recession and as
strength in the yen weighed on exporters.
    The yen has gained on worries that the U.S. 'fiscal cliff',
a mix of mandated tax increases and spending cuts due to extract
some $600 billion from the U.S. economy in the new year, could
push the United States and possibly the global economy into
    The reemergence of macro-economic concerns, on a brief
hiatus due to the U.S. Presidential election, comes amid a weak
quarterly earnings season.
    "The Japanese stock market does not have positive trading
cues for the time being as companies are cutting their
forecasts," said Hiromichi Tamura, chief equity strategist at
Nomura Securities.
    The Nikkei dropped to 8,837.15, its lowest close
since Oct. 17, breaking below its 25-day moving average at
    It is up 4.5 percent this year, trailing a 10.9 percent rise
in the U.S. S&P 500 and a 10.8 percent gain in the
pan-European STOXX Europe 600 index.
    The broader Topix shed 1.4 percent to 735.35.
    Japan's core machinery orders, seen as a leading indicator
of capital spending in the coming six to nine months, fell 4.3
percent in September compared with a median forecast of a 1.8
percent decline.
    "Japan's economy likely slipped into recession earlier this
year and will gradually weaken for the time being," said Takeshi
Minami, chief economist at Norinchukin Research Institute in
    The yen stayed firm after rallying on Wednesday as U.S.
stocks skidded in their worst performance in over five
months. It was trading at 79.77 to the dollar on Thursday,
compared with an intraday low of 80.41 on Wednesday.
    Exporters, which are hurt by a strong yen that eats into
earnings garnered abroad, sank, with Canon Inc, Honda
Motor Co and Toyota Motor Corp down between
2.5 and 3.5 percent.
    But while the market mood was gloomy on Thursday, UBS
recommended investors buy long-term Nikkei calls, saying it
expected gradual improvement in the global economy.
    "As a consequence of developed economy divergence, we
anticipate a generally stronger U.S. dollar over the forecast
horizon. Specifically, our year-end dollar forecasts versus yen;
85 at the end of next year and 90 by end 2014," it said.
    As of Tuesday, 59 percent of the 119 Nikkei companies that
have reported quarterly earnings so far undershot market
expectations, according to Thomson Reuters StarMine. That
compared with 54 percent in the previous quarter.   
    Among companies cutting annual guidance, telecommunication
equipment maker Oki Electric Industry Co Ltd slid 9.4
percent and watch maker Citizen Holdings tumbled 7.9
    But Isuzu Motors climbed 4.7 percent after it
lifted its annual operating profit estimate and Mitsubishi
Materials Corp added 3.2 percent after keeping its
operating profit outlook despite falling copper prices.
    Still, Japanese equities are slightly more expensive than
their European counterparts, with a 12-month forward
price-to-earning ratio of 11.3 versus STOXX Europe 600's 11,
data from Thomson Reuters Datastream showed. The S&P 500 carries
a 12-month forward P/E of 12.6.
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