Japan stock market week to June 12, 2006

Tokyo saw a steep correction in the week to June 12. The Nikkei 225 dropped 5.3%, to close at the 14,800 mark, while the Topix Index was also down a like percentage. Players were discouraged by the continued weakness of New York markets due to the warning on inflation by the Federal Reserve Bank. Investors worried about a possibility that US economy could slow down with higher interest rates, bringing a negative impact on the operating performance of Japanese export-oriented companies. Although some market participants are active in bargain-hunting - taking advantage of the the recent market pullback - there is a recognition that Japanese stocks are still expensive relative to US and European equities. The market was not encouraged by a report that Japan's index of coincident economic indicators in April came to 77.8%, exceeding the boom-or-bust mark of 50% for the first time in three months.

The pharmaceutical index fell 4.9%, marginally outperforming the market. Tanabe plunged 7.1% even though it out-licensed to fellow Japanese firm Maruho, its phosphodiesterase 4 (PDE 4) inhibitor originated by Tanabe for the treatment of allergic dermatitis for external use. It is expected that the agent could be effective for treating skin diseases with the inhibition of activation of inflammatory cells. Maruho, which specializes in the treatment skin diseases, will have rights for developing and marketing the drug in Japan.

Astellas declined 5.3%, on the news in the previous week that it had terminated the in-licensing agreement with Laboratoires Servier of France, regarding the anti-osteoporosis drug FK481 (strontium ranelate). The drug has been launched overseas under the trade mark Protelos. Although Japanese Phase II studies indicated favorable efficacy and safety of strontium ranelate equivalent to results of European studies, Astellas decided to terminate further development of the drug based on the re-evaluation of the priority of its new drug pipeline.