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Japan-Update

China-exposed stocks take a drubbing in Tokyo

Reports of travel restrictions and lackluster production give investors pause

TOKYO -- Japanese equities linked to inbound consumption by Chinese went south Friday amid speculation that China is restricting overseas travel as a way of stanching capital outflows.

Komehyo, which sells secondhand designer goods, and department store operator Matsuya closed down roughly 7%, while electronics retailer Bic Camera lost nearly 4%. Cosmetics makers Shiseido, Kose and Pola Orbis Holdings also retreated, as did drugstore operator Matsumotokiyoshi Holdings, travel group H.I.S. and discount retailer Don Quijote Holdings. Price multiples on the high side had made some of these shares ripe for a sell-off.

Chinese tourists form a not-insignificant part of the customer base at all these companies. Media reports have surfaced of Chinese authorities telling local travel agencies to limit travel to Japan. Investors are apparently taking these unconfirmed reports seriously, especially given the prospect that a stronger dollar could exacerbate yuan outflows as the U.S. Federal Reserve normalizes monetary policy.

Meanwhile, Chinese industrial production slowed for a second straight month in August, feeding concerns about a decelerating economy, to the detriment of steel suppliers. Japan-based JFE Holdings fell more than 5% on Friday before paring its losses, while peer Nippon Steel & Sumitomo Metal suffered a third consecutive down day. Shanghai-listed Baoshan Iron & Steel gave up 2%, and on Wall Street, U.S. Steel tumbled Thursday.

"It is possible that the Chinese economy has been softening somewhat since this summer," said Osamu Takashima of Citigroup Global Markets Japan.

(Nikkei)

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