Japan's Nikkei average fell on Friday after the ECB disappointed investors by offering no immediate action to prop up the euro, with wide quarterly losses from Sharp and Sony adding to the gloom. Both Sharp Corp and Sony Corp plummeted to their lowest in more than three decades after posting heavy losses and cutting their full-year profit outlooks.
The Nikkei dropped 1.1 percent to 8,555.11, breaking below 8,581.97, the 61.8 percent retracement of its rally from June 4 to July 4. The benchmark index ended 0.1 percent down on the week after ECB president Mario Draghi disappointed investors by not taking imminent steps to defend the common currency, as Germany remained opposed to the bank buying Italian and Spanish bonds.
"Unfortunately it wasn't a great surprise; the ECB is paralyzed unless the eurozone politicians come to some kind of consensus, and that's not going to happen for a while," said Hideyuki Ishiguro, senior strategist at Okasan Securities. Fifty-five percent of the 111 Nikkei companies that have so far reported quarterly earnings missed market expectations, data from Thomson Reuters StarMine showed. That compared with 40 percent in the previous quarterly earnings season.
Sharp dropped 28.1 percent to strike its lowest level since 1976, after the company changed its full-year outlook from a 20 billion yen ($256 million) profit to a 100 billion yen loss. J.P. Morgan also downgraded the company's rating by two notches to "underweight" and almost quartered its price target to 143 yen from 550. Scores of investors dumped its shares, making it the most traded stock on the main board, but it was difficult to short: 73.61 percent of the stock available to be borrowed was out on loan as of August 1, according to data provider Markit.
Sony fared little better, losing 6.7 percent after posting a year-on-year 77 percent decrease in the first quarter and slashing its full-year operating profit forecast. "There is no catalyst to buy both Sharp and Sony. In terms of Sony, the gaming business, LCD TV and mobile phone (business) are losing their competitiveness ... They have to restructure and take the massive burden of restructuring costs," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
Nippon Sheet Glass Co Ltd also added to investors' gloom after it cut its full-year sales forecast by 5 percent due to declining demand in Europe and "significantly worse-than-expected" market conditions in the first quarter. The stock sank 14.3 percent. However, Toyota Motor Corp reported a quarterly operating profit of 353 billion yen ($4.5 billion) after the bell, beating the average estimate of 341.1 billion yen based on eight analysts polled by Thomson Reuters I/B/E/S and compared with a 108 billion yen loss a year earlier.
And smaller-than-expected decline in July sales at Uniqlo clothing stores sent its operator Fast Retailing, an index heavyweight, up 2.9 percent. One of those was Nihon Kohden Corp, a medical equipment maker that rose 6.9 percent after hitting an intraday 52-week high as it hiked its operating income for the six months ending in September by 14 percent due to better-than-expected profit margins. The broader Topix index lost 1.2 percent to 723.94, and is now 0.6 percent down on the year.
Trading volume on the main board was robust, at 103.2 percent of its full daily average for the past 90 days, with 1.78 billion shares exchanging hands, the most for a week. The Nikkei has now fallen 5 percent since hitting a two-month high on July 4, and is just 1.9 percent up on the year.