Japanese stocks fell by the most in two weeks as U.S. unemployment unexpectedly increased, dimming the outlook for a global economic recovery and driving down exporters. Toyota Motor Corp. (7203), which counts North America as its largest market, dropped 0.9 percent after U.S. payrolls grew at the slowest pace in nine months. Canon Inc., a camera maker that gets more than 80 percent of its revenue outside Japan, slipped 1 percent after the yen strengthened. Elpida Memory Inc. plunged 9.4 percent after Reuters said the maker of memory chips will sell 80 billion yen ($991 million) in shares. The Nikkei 225 Stock Average fell 0.5 percent to 10,084.44 as of 12:40 p.m. in Tokyo. The broader Topix index declined 0.4 percent to 871.13. Both gauges fell by the most since June 27. “The unemployment data was pretty bad and it was a shock to the market,” said Takashi Aoki, who helps oversee about $2.2 billion at Mizuho Asset Management Co. in Tokyo. Stocks also declined following a report showing inflation in China, Japan’s biggest export market, accelerated to a three- year high of 6.4 percent in June. Some analysts said price gains may moderate in the second half of the year. Futures on the Standard & Poor’s 500 Index lost 0.5 percent today. The index dropped 0.7 percent on July 8 as the weakest U.S. job growth in nine months hurt companies most-closely tied to the economy. U.S. Payrolls U.S. payrolls increased by 18,000 in June, less than the most pessimistic forecast in a Bloomberg News survey of economists, which called for growth of 105,000 on average. The jobless rate rose to a 2011 high of 9.2 percent. Toyota fell 0.9 percent to 3,415 yen. Honda Motor Co., Japan’s second-largest carmaker, lost 0.6 percent to 3,240 yen. Canon dropped 1 percent to 3,880 yen. Declines were limited ahead of a second-quarter earnings season in the U.S. that starts today with Alcoa Inc., a bellweather for the global economy. Profit at the world’s largest aluminum producer probably increased to 34 cents per share in the three months ended June 30, up from 13 cents a year earlier, buoyed by higher aluminum prices, according to analyst estimates. “The argument has been that, although the job market is weak, earnings have been good, so it will be a shock if we get negative news in the earnings department, as well,” Mizuho Asset Management’s Aoki said. “Some investors are going to be cautious right now.” Low Volume Trading volume was thin in Tokyo ahead of U.S. earnings reports. The value of stocks traded on the Tokyo Stock Exchange’s first section totaled 416.4 billion yen ($5.16 billion) at the midday trading break, less than one third of this year’s full-day average of 1.44 trillion yen. U.S. Corporate profits are forecast to have grown by 13 percent in the second quarter, the smallest increase in two years, according to analyst estimates compiled by Bloomberg. Japanese exporters declined today after the yen appreciated to 80.51 against the dollar, compared with 81.27 at the close of stock trading in Tokyo on July 8. Against the euro, Japan’s currency strengthened to 114.40 from 116.55, a level not seen since June 27. A stronger yen hurts Japanese exporters because it cuts the value of overseas sales. The euro fell to a two-week low against the yen amid concern Italy may be engulfed in the region’s sovereign debt crisis. The European Central Bank is seeking to expand the euro- rescue fund to include help for Italy, Die Welt reported, citing unidentified “high-ranking” people at central banks. Elpida Plunges Elpida, Japan’s sole maker of computer-memory chips, slid 9.4 percent to 823 yen. The company will agree today to sell 50 billion yen in shares and 30 billion yen in convertible bonds, Reuters said, citing three people it didn’t identify. The money will be invested in chips for smartphones and tablet computers, the report said. Tokyo Electron Ltd. sank 2 percent to 4,475 yen after saying orders declined. Bookings for tools used to make semiconductors and flat-panel screens fell 34 percent to 120 billion yen in the three months ended June from in the preceding quarter. Seiko Epson Corp., a maker of printers and watches, retreated 1.8 percent to 1,362 yen. Operating profit fell 60 percent to about 4 billion yen in the April-June period, as production of ink-jet printers and electronic parts slumped after the earthquake disaster in March, the Nikkei newspaper reported without citing anyone. Utilities Advance Among stocks that advanced, Tokyo Electric Power Co. led power companies higher after the Wall Street Journal reported Japan’s government has shelved a plan to sell the utility’s transmission assets to avoid panicking financial markets and to maintain the utility as a viable company. Tokyo Electric jumped 8 percent to 444 yen. Kansai Electric Power Co., Japan’s second-largest utility by sales, advanced 2 percent to 1,505 yen. Ryohin Keikaku Co., operator of the Muji retail chain, leapt 5.8 percent to 4,140 yen after the company raised its first-half profit forecast by 55 percent. K’s Holdings Corp., an electrical appliance shop operator, advanced 3.6 percent to 3,850 yen, as the company had its share- price target boosted to 4,100 yen from 3,700 yen at Goldman Sachs Group Inc. To contact the reporter on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net. To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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