Stock Commentary - Tokyo - week to Sept 25, 2006

TOKYO: saw the Nikkei 225 gyrate through the reporting week to September 25, to end 1.6% lower overall at 15,633.81 Along with most Asian markets, Tokyo reacted negatively to the military coup in Thailand, believing that the situation could cause regional upheaval as it did in the 1997 crisis which began with the devaluation of the baht, although these concerns abated. Ahead of the weekend, stocks fell to a six-week low on fears about a slowdown in the US economy, with export and pharmaceutical issues leading the decline. At the end of the reporting period stocks dipped on fears that some domestic issues had been overpriced but also on worries that incoming Prime Minister Shinzo Abe may not be as keen on structural reform as five-year incumbent Junichiro Koizumi.

Among the pharmaceutical issues, virtually all those followed saw a decline, and Daiichi Sankyo slumped 3.0% on September 22, after a downgrade to neutral by Nikko Citigroup, with the stock ending the week 3.6% lower. Takeda fell a sharp 5.0%, despite the company bouncing back to the number one spot (from eighth last year) in a fiscal 2006 corporate excellence survey by Nihon Keizai Shimbun. The drugmaker's group operating profit margin of 33% helped it to return to the top rank. On the last reported day, Takeda, Japan's largest drugmaker, fell 1.8%, and Astellas, the third biggest, declined 2.1%, reflecting the loss of the right to the next dividend payment for these companies, which means investors value the stocks lower because of the reduced returns they will receive, according to Bloomberg. The one positive was Nippon Chemiphar, up 6.4%, benefiting from encouraging comments on the outlook for the domestic generic drug market.