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Toshiba Corp.’s bonds were Japan’s biggest losers this month, and the worst may not be over in the nation’s latest accounting scandal.

The company’s 1.68 percent debt maturing in 2020 lost 1.45 percent in July, the most among 621 yen-denominated corporate issues in a Bank of America Merrill Lynch index.

Standard & Poor’s said last week it may cut Toshiba’s BBB rating, the second-lowest investment grade.

Toshiba inflated earnings by at least ¥152 billion ($1.2 billion) since the 2008 financial year, and Nomura Holdings Inc. predicts the hit to its capital may be four times the amount the company now forecasts. It’s the latest tarnish to the image of Japan’s corporate sector after Takata Corp., Toyo Tire & Rubber Co. and Lixil Group Corp. added to infractions since the Olympus Corp. fiasco in 2011.

“There is a possibility that this case develops into one like Olympus,” said Hiroaki Hayashi, a director and executive officer in Tokyo who manages the equivalent of $13.8 billion at Fukokushinrai Life Insurance Co. and previously owned Toshiba bonds. “I don’t want to invest in them. I want to see the situation a bit longer.”

Toshiba President Hisao Tanaka and two predecessors resigned posts this month after investigators found the company had hidden accounting irregularities.

Finance Minister Taro Aso said faith in Japan’s stock market is at risk if companies don’t follow proper corporate governance. Executives at other local firms sought to assure investors.

Ernst & Young ShinNihon LLC, Toshiba’s auditor, will examine a third-party report, assign more accountants and audit past financial statements, it said earlier this month. Toshiba will announce a new management team in mid-August, and its fiscal 2014 earnings will be released Aug. 31.

“These are deep-rooted issues,” Rating & Investment Information Inc. said in a statement July 21, when it put Toshiba’s A minus credit rating on review for downgrade. “Toshiba is heavily indebted, and its financial base is far below the level required for the rating.”

Four Toshiba bonds are the worst-performing Japanese corporate notes this month, according to Bank of America Merrill Lynch. The yield premium on the 1.68 percent debt widened to 117 basis points over sovereign notes, from 26 in May, while the average spread on Japanese company bonds is 24 basis points, four points above a seven-year low.

Toshiba spokeswoman Midori Hara declined to comment on estimates for the size of the company’s writedowns, and said the firm is working as one to win back trust.

“We will not get in at this level,” said Tadashi Matsukawa, the head of fixed income investment at PineBridge Investments Japan. “The bad news is over, but a delayed reaction from a rating agency is possible.”

Toshiba, which makes everything from nuclear power plants to laptop computers and memory chips, had ¥1.9 trillion in capital compared with net debt of ¥1.38 trillion at the end of December. The 140-year-old manufacturer holds an important position in Japan’s corporate world, making it unlikely the scandal will be fatal, said Toshihiro Uomoto, chief credit strategist at Nomura.

Uomoto recommended that investors buy Toshiba’s debt following the recent blowout in spreads even with the risk of a rating downgrade. The company likely faces only a one-level cut, he said.

Fukokushinrai’s Hayashi is less optimistic and said R&I could reduce Toshiba to junk status, a four-rank decrease at least, citing concern at the size of potential writedowns in the company’s nuclear business.

“The situation is very serious,” Hayashi said. “There’s some growing concerns on corporate governance, but Japanese companies should have learned by now.”

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