Asian Stocks Decline on Yen Strength, Fed Economy Prediction

(Bloomberg) -- Asian stocks retreated, dragging the MSCI Asia Pacific Index from a seven-month high, as the stronger yen diminished earnings prospects in Japan and the U.S. Federal Reserve projected a deeper recession.

Toyota Motor Corp., which got 31 percent of its revenue in North America last fiscal year, lost 2.2 percent. Department store operator Takashimaya Co. lost 3.4 percent in Tokyo as the first cases of swine flu were confirmed in the city. Rio Tinto Group, the world’s No. 3 mining company, rose 2.4 percent after the Sydney Morning Herald reported Aluminum Corp. of China may accept a lower stake to win approval for an investment.

The MSCI Asia Pacific Index fell 0.6 percent to 99.64 as of 12:21 p.m. in Tokyo. The gauge closed at its highest level since Oct. 6 yesterday, driving stock valuations to the most expensive since 2003.

“We need to see economic fundamentals improve to match the recovery in equity markets,” said Chong Yoon Chou, Singapore- based investment director at Aberdeen Asset Management Asia Ltd., which has $27 billion of assets. “An economic recovery will take some time.”

Japan’s Nikkei 225 Stock Average declined 1.2 percent to 9,235.15. China’s Shanghai Composite Index lost 1.6 percent as a Credit Suisse Group AG report said a rebound in economic growth won’t be as “strong as many recently have hoped.” Markets in Asia fell except in Malaysia and Vietnam.

Brokerage Downgrade

Ibiden Co., which makes components for memory chips, slumped 2.5 percent after Nikko Citigroup Ltd. recommended selling the stock, citing weak profit growth. Chi Mei Optoelectronics Corp., Taiwan’s No. 2 maker of liquid-crystal displays, surged for a second day after China said it will widen subsidies to include home appliances. Online retailer Rakuten Inc. jumped 3.9 percent on speculation an outbreak of swine flu will push consumers to shop from home.

Futures on the U.S. Standard & Poor’s 500 Index lost 0.4 percent. The gauge sank 0.5 percent yesterday as American Express Co. said legislation to curb credit-card fees may reduce lending to consumers.

Fed policy makers projected a fourth-quarter U.S. contraction of 1.3 percent to 2 percent from a year earlier, according to minutes of an April 28-29 meeting released yesterday. That compares with January projections for a contraction of 0.5 percent to 1.3 percent.

U.S. unemployment surged to 8.9 percent in April, a level not seen since 1983.

Yen Strength

The yen strengthened versus the dollar to as much as 94.29 today from 95.52 at the 3 p.m. close of stock trading in Tokyo yesterday, as the Fed said it considered buying more assets, a move that could devalue the U.S. dollar. A stronger local currency diminishes the value of overseas sales for Japanese manufacturers.

“Should the yen continue to strengthen, people will likely start doubting whether companies’ rather optimistic outlooks are justified,” said Mitsushige Akino, who oversees about $632 million at Ichiyoshi Investment Management Co. in Tokyo.

Toyota sank 2.2 percent to 3,580 yen. Sony Corp., the maker of the PlayStation 3 game console, declined 1.6 percent to 2,465 yen even after the company said it plans to reduce procurement costs by a fifth.

The MSCI Asia benchmark rallied as much as 42 percent from a more-than five year low reached on March 9. Stocks included in the MSCI gauge now trade at 43 times trailing earnings, the most expensive since 2003.

Oil, Copper

Rio gained 2.4 percent to A$66.37. Aluminum Corp., known as Chinalco, is open to letting Rio sell convertible bonds to other shareholders and would be prepared to accept a stake of 15 percent, the Sydney Morning Herald said. That would potentially avoid a breach of foreign ownership limits.

Commodity producers also climbed as crude oil for July delivery jumped 3.2 percent to $62.04 a barrel in New York yesterday, the highest settlement since Nov. 10. Copper futures added 1.8 percent. Both prices fell today.

Takashimaya slipped 3.4 percent to 575 yen. Aeon Co., Japan’s second-largest retailer, declined 3.1 percent to 856 yen. Rakuten jumped 3.9 percent to 52,800 yen.

Two 16-year-old high school students have been confirmed as the first cases of swine flu in the Tokyo area, according to statements from the Tokyo and Kawasaki city governments. Japan said 234 people have the virus, which has sickened more than 10,000 people worldwide.

“Retail, restaurant and leisure businesses will be affected,” Ichiyoshi’s Akino said. “As people are likely to stay in their house, online retailers and mail-order companies will benefit.”

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