Japan Shares Drop as Nikkei 225 Retreats From 5-Year High

Japanese shares dropped, with the Nikkei 225 (NKY) Stock Average falling from its highest since July 2008, as the yen gained against the dollar and investors await major earnings reports this week.

Sony Corp. (6758), which gets nearly 20 percent of its sales from the U.S., fell 0.6 percent. Yamada Denki Co. dropped 4.8 percent after the electronics retailer missed its profit forecast by 35 percent. Oki Electric Industry Co. surged 21 percent after the Nikkei newspaper said operating profit doubled at the maker of ATMs. Komatsu Ltd., a machinery maker that gets 17 percent of its sales in China, reversed gains after Chinese manufacturing data fell short of estimates.

The Nikkei 225 lost 0.3 percent to 13,529.65 at the close in Tokyo. The Topix Index lost 0.2 percent to 1,143.78, with about three stocks gaining for every two that fell on the 1,698- member index.

"The yen is weakening at a slower pace, and there's no catalyst for the Bank of Japan to ease further, which is what it would take to send the yen down," said Ayako Sera, a market strategist in Tokyo at Sumitomo Mitsui Trust Bank Ltd., which manages about $163 billion. "Investors now need to see how the yen's slide impacts earnings."

The Topix has climbed 58 percent since mid-November through as Prime Minister Shinzo Abe and central bank Governor Haruhiko Kuroda pledged to defeat 15 years of deflation. The gauge trades at 1.3 times book value compared with 2.3 for the Standard & Poor's 500 Index and 1.6 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

China Manufacturing

The yen rose and shares tied to China reversed gains after as report on the country's manufacturing added to concern Asia's largest economy is faltering.

The preliminary reading for China's Purchasing Managers' Index released by HSBC Holdings Plc and Markit Economics compared was below the median estimate in a Bloomberg News survey of 11 analysts.

The yen rose 0.5 percent to 98.75 against the dollar, reducing the outlook for Japanese exporters' earnings when repatriated.

Toyota Motor Corp., the world's biggest carmaker, lost 0.7 percent. Honda Motor Co., which gets about 44 percent of its sales from North America, declined 1 percent. Sony slid 0.6 percent to 1,625 yen.

Komatsu, the world's second-biggest construction equipment maker, declined 0.2 percent to 2,504 yen, reversing an earlier gain of as much as 1.5 percent. Hitachi Construction Machinery Co., which gets 17 percent of its revenue from China, closed down 0.3 percent at 2,160 yen after earlier advancing 1.8 percent.

Earnings Releases

Nintendo Co. and Mitsubishi Motors Corp. are among more than 200 companies on the Topix scheduled to report earnings this week, according to data compiled by Bloomberg. Of the 61 companies that have posted results so far this month and for which Bloomberg has estimates, 43 percent beat expectations, while 57 percent fell short, the data show.

Yamada Denki, Japan's biggest electronics retailer, dropped 4.8 percent to 4,710 yen after full-year net income was 35 percent below its forecast of 34 billion yen, according to a preliminary earnings report.

Oki Electric surged 21 percent to gain the most on the Nikkei 225 after the Nikkei newspaper said the company may report an operating profit of 22 billion yen for the year ending March 2014, more than double the company's forecast for the previous period.

The Nikkei Stock Average Volatility Index lost 1.9 percent to 25.38 today, indicating traders expect a swing of about 7.3 percent on the benchmark gauge over the next 30 days. Volume on the measure was 7.1 percent lower than its 30-day average at the close.