Commodities sector leads drop in Tokyo stocks

The strong yen hit export stocks on Friday while commodities shares were sharply down following the rise in Chinese interest rates. Much of the rise in commodity prices in recent months has been attributed to strong Chinese demand. Higher interest rates could dampen that demand.

Individual companies showed a mixed response to earnings results, though there were dramatic swings in some stocks as a result.

The Nikkei 225 closed down 1.2 per cent to 16,906.23, its lowest close since March 28. The Topix fell 0.8 per cent to 1,716.43.

After the market closed, the Bank of Japan released its semi-annual economic outlook report, which said that Japan is likely to see 0.6 per cent inflation in terms of the consumer price index in the fiscal year ending March 2007. Japan’s central bank indicated an interest rate rise in the near future by saying it would gradually adjust rates in accordance with movements in the economy and prices.

Honda, the carmaker, fell 1.1 per cent to Y8,090 in response to the stronger yen. Toyota, Japan’s biggest carmaker and one of its largest exporters, declined 0.2 per cent to Y6,660.

Nippon Steel, Japan’s leading steelmaker, fell 1.2 per cent to Y420. JFE, Japan’s second-biggest steelmaker, was 1.3 per cent lower at Y4,420.

Sony, the consumer electronics and entertainment giant, lost 5.1 per cent to close trading at Y5,720. Investors responded to a much lower than expected earnings forecast for 2006/07, though its profit for 2005/06 was much higher than expected.

Pioneer, the consumer electronics maker, rose 2.5 per cent to Y2,015 after reporting a narrower than expected operating loss for 2005/06, and forecasting a return to profit this financial year.

TDK, the electronic parts maker, climbed 2.8 per cent to Y9,530 after reporting strong earnings for 2005/06, and forecasting further profit growth for 2006/07.