Japan shares drop on earnings caution, bond volatility
* Corporate earning guidance below analyst forecasts * Focus on volatility in global bond markets * Toyota shares lucklustre after earnings last week * Bridgestone falls on soft quarterly result By Hideyuki Sano TOKYO, May 12 (Reuters) - Japanese share prices slipped on Tuesday, losing momentum as investors considered the implications of conservative earnings guidance from Japanese companies and volatile bond markets. The Nikkei share average fell 0.6 percent to 19,499.18, failing to extend gains in the last two sessions and slipping further off a 15-year high of 20,252 hit in late April. While many Japanese companies expect to see profit growth in the financial year to March, they are far more conservative than analysts. "This is a period of time in year when we are likely to see the biggest gap between analysts' forecasts and company forecast," said Seiki Orimi, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. A case in point was Toyota Motor, the largest Japanese company by market capitalisation, which on Friday announced a 1.8 percent increase in operating profits to another record, but saw its shares sliding after initial gains. Toyota is down 0.4 percent on Tuesday, hovering at three-week lows. Companies with more disappointing news fared worse. Bridgestone fell 4.4 percent after a soft quarterly earnings report, with its net profit falling 0.5 percent in January-March from a year earlier. Toshiba Corp fell 5.4 percent following a big fall on Monday after the company withdrew its earning guidance when internal investigations found accounting problems. Electronic component maker Taiyo Yuden fell 9.6 percent after its profits in the year that ended in March fell short of market expectations. The market is also capped as investors remained wary of volatile bond prices in many developed countries. For example, the U.S. 30-year Treasuries yield rose to six-month high above three percent on Monday as bond prices fell. While higher U.S. yields could help Japanese stocks by lifting the dollar against the yen, higher borrowing costs could hurt shares not on just Wall Street but in many other markets as well. "We are potentially at a crossroads. If U.S. monetary policy begins to tighten, U.S. equity markets may have trouble rallying, which could translate to some caution in other equity markets including Japan," said Stefan Worrall, director of equity at Credit Suisse. Some players are also winding back their position of buying stocks and bonds, funded by borrowing in the euro - so-called euro-carry trades, said Mitsubishi UFJ's Orimi. The broader Topix fell 0.5 percent to 1,589.99 while the JPX-Nikkei Index 400 dropped 0.6 percent to 14,366.42. Bucking the trend, Suzuki Motor rose 5 percent after the company said it expected a record profit in the current financial year. (Editing by Eric Meijer)
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