Japanese Stocks Fall on Signs Economy Is Not Recovering

Sept. 28 (Bloomberg) -- Japanese stocks fell, led by domestic-demand oriented companies on signs the world's second- largest economy isn't recovering after unemployment unexpectedly rose and consumer prices dropped for a seventh month.

Circle K Sunkus Co. declined 4 percent after the convenience store chain said it expects first-half profit to slide 20 percent. Millea Holdings Inc., the largest publicly traded insurer, lost 2.8 percent. The Bank of Japan's Tankan survey will probably show business sentiment dropped to the lowest level since June 2006.

``A fundamental perspective does not favor domestic demand companies, as their opportunities for growth look slim,'' said Hiroyoshi Nakagawa, who helps oversee about $1 billion in Asian equities at Societe Generale Asset Management Co. ``Disposable income in Japan is not increasing, and the middle class is shrinking, which indicates that earnings at domestic companies are not going to improve.''

The Nikkei 225 Stock Average dropped 47.57, or 0.3 percent, to 16,784.65 as of the 11 a.m. break in Tokyo. The Topix index lost 6.04, or 0.4 percent, to 1,609.11. For the week, the Nikkei has gained 2.9 percent and Topix has risen 3.7 percent.

Inpex Holdings Inc., Japan's largest oil explorer, gained after oil prices rose 3.2 percent to the second-highest close ever.

Circle K Sunkus, Japan's third-largest convenience store operator, fell 74 yen to 1,760. Millea Holdings lost 130 yen to 4,570.

The consumer price index excluding fresh food fell 0.1 percent in August from a year earlier, as retailers absorbed higher costs to keep prices low and attract customers. Unemployment rose to 3.8 percent from 3.6 percent. Economists had forecast the rate would be unchanged.

Tankan Survey

The Tankan survey, set to be released on Oct. 1, will probably show business sentiment among major manufactures fell to 21 points in the third quarter from 23, according to economists.

``Next week's Tankan is expected to be weak as the yen has started to strengthen and the subprime problem is in the back of everyone's mind,'' said Daisuke Shimazu, an investment manager at Sumitomo Trust & Banking Co., which has about $200 billion in assets. ``There's no reason to be buying domestic demand stocks.''

Inpex rose 10,000 yen, or 0.9 percent, to 1.18 million. Japan Petroleum Exploration Co., the nation's second-biggest oil explorer, added 100 yen, or 1.2 percent, to 8,450. Crude oil for November delivery rose $2.58 to settle at $82.88 a barrel in New York, the biggest one-day gain since May 17.

Mitsubishi Heavy

Mitsubishi Heavy Industries Ltd., Asia's biggest maker of power equipment, rose 22 yen, or 3 percent to 759 after the company said it will sign a contract today to supply a nuclear station in China, the world's fastest-growing major economy.

Daiichi Sankyo Co., Japan's third-largest drugmaker, climbed 80 yen, or 2.4 percent, to 3,380 after it won U.S. approval for a new blood-pressure treatment that combines its Benicar with the active ingredient in Pfizer Inc.'s Norvasc.

Takefuji Corp., Japan's fourth-largest consumer lender, jumped 105 yen, or 4.9 percent to 2,260 yen. It earlier rose as much as 11 percent after announcing a plan to buy back its shares.

Limiting declines, industrial production rose 3.4 percent from July to a record, the trade ministry said today. Spending by households climbed 1.6 percent from a year earlier, beating forecasts for a 1.2 percent gain.