Japan Caps Spending; Nikkei Declines 1%

Mayank Mehta, Chandrasekhar Atreya and Sanjay Barot
22 Jun, 2010
New York City

Stocks in Japan decline on the euro-zone worries. Japan releases its fiscal 10-year plan to reduce debt, fight deflation and cap government spending. Japanese parts plants in China resort to mechanization to fight labor problems.

[R]5:00 PM Tokyo, Japan - Stocks in Japan decline on the euro-zone worries. Japan releases its fiscal 10-year plan to reduce debt, fight deflation and cap government spending. Japanese parts plants in China resort to mechanization to fight labor problems.[/R]

Stocks in Japan declined amid euro-zone debt worries after a rating agency downgraded BNP Paribas, the Paris-based bank by one notch.

The Nikkei 225 Stock Average retreated 1.2% to close at 10,122.89 and of the stocks in the index, 37 increased, 173 declined and 15 remained unchanged.

Japan released its fiscal plan today to rein in its debt by targeting a balanced budget by the year 2020 but did not specify details.

Annual spending will be capped at 71 trillion yen over the next three years. It also said that the government will decide changes to the tax regime after discussions with opposition parties to get at a consensus. Fitch Ratings had said yesterday that there is a need for the plan to be credible to avoid risking the nation’s AA- credit rating.

The strategy also called for ministries to follow a policy of “pay-as-you-go” meaning that budgets must be finalized only after securing extra funds before seeking additional spending.

However, a Finance Ministry panel from the private sector released a report in Tokyo today saying that government should consider raising taxes on consumption and high income earners to restore the fiscal health of the nation.

Factory owners in China are facing declining profit margins after wage hike effects have been exacerbated by a rising yuan. This has prompted many companies including Nissan and Foxconn to boost their automation efforts.

Nissan’s venture with Dongfeng Motor Group Co is building a 5 billion yuan plant in Guangzhou that will be more automated, said Nissan spokesman Mitsuru Yonekawa. Both, Foxconn Technology Group, Nissan’s China venture and VTech Holdings Ltd, said they are investing in factory equipment to increase automation and reduce their reliance on labor.

Osaka, Japan’s second largest financial center is in the midst of a building boom started a few years ago that adds to the worsening office space glut in the market. The city is building a business and shopping complex in the northern part of the city, which in its first stage will add 6 million square feet of office space in the city.

The project will add four towers of 33 to 48 stories in the Umeda district according to one of the project developers. Construction which started in March is due to be completed in 2013.

Vacancies among new office space in Osaka stood at 53% in May according to Tokyo-based Miki Shoji.

Nikkei Movers

Fukuoka Financial Group, Inc led gainers in the Nikkei 225 Stock Average with a rise of 3.7% followed by Fujitsu Ltd 3.5%, Sapporo Holdings Ltd 2.8% and Resona Holdings, Inc 2.8% and Teijin Ltd 2.8%.

Sumco Corp led the decliners in the Nikkei 225 Stock Average with a loss of 3.9% followed by Denki Kagaku Kogyo Kabushiki Kaisha 3.8%, Ube Industries, Ltd 3.6%, Citizen Holdings Co., Ltd 3.6% and Tokyo Electron Limited 3.6%.

Other Movers

Canon Inc dropped 2.7% to 3,780.00 yen.

Mitsui & Co Ltd fell 2.8% to 1,175.00 yen and Yamada Denki Co Ltd, the electronics retailer, added 1.6% to 6,160.00.