Nikkei down on yen strength in holiday-thinned trade

By Antoni Slodkowski

TOKYO (BestGrowthStock) – Japan’s Nikkei average dropped 0.7 percent on Friday, coming off a seven-month high, as the yen strengthened against the dollar and the euro in holiday-thinned trade.

But general bullishness in global equities markets and a positive outlook for the Nikkei in 2011 will provide support for the market during the last week of trade for the year, investors said.

Trading volume dropped to its lowest since August 9 and marked its second lowest this year, ahead of holidays in other major markets.

Less than 1.3 billion shares changed hands on the Tokyo Stock Exchange’s first section, well below last week’s average of around 2.1 billion shares.

“The Nikkei lost steam today, because of the stronger yen, but the downward move is exaggerated by very low volume. Overall sentiment remains intact,” said Yumi Nishimura, a senior market analyst at Daiwa Securities Capital Markets.

“Everyone is already thinking about the next year, and with the Nikkei set to post strong gains in 2011, major investors are waiting on the sidelines to take up big positions in early January,” she said.

But electronics maker Toshiba Corp gained 0.7 percent and was the third-most actively traded stock by turnover after the Nikkei business daily reported it will outsource fabrication of system chips to South Korea’s Samsung Electronics Co, freeing up resources for its memory chip operations.

The benchmark Nikkei fell 67.29 points to 10,279.19. It had climbed to its highest level since May 14 on Wednesday. Markets were closed on Thursday for a public holiday.

The broader Topix index lost 0.5 percent to 901.66.

The Nikkei has rallied more than 12 percent since early November as foreign fund managers aggressively added Tokyo equities, which, having lost around 2.5 percent in the year to date, were considered cheap.

Foreigners’ net purchases of Japanese stocks last week hit their highest since April, rising to a net 224.4 billion yen during the week to December 18, Finance Ministry data showed.

Foreign investors were net buyers of Japanese stocks for a seventh straight week, with total net purchases during those seven weeks of 1.05 trillion yen.

But some traders were worried that a rift within Japan’s ruling Democratic Party over scandal-plagued powerbroker Ichiro Ozawa is distracting the government from tackling tough policy decisions and complicating prospects for passing laws.

TECHNICALS SOLID

The positive mood in the Tokyo market was bolstered by solid long-term technical indicators, with the Nikkei keeping well above immediate technical support at its 25-day moving average, a gauge often used by Japanese traders, now at 10,179.41.

Technical sentiment could become even stronger should the Nikkei break through resistance of 10,420.74, the level where futures and options contracts expired in December settled earlier this month, traders said.

“Buying by foreigners is very likely going to continue into the last week of the year. I doubt today’s losses will have a huge impact on the positive mood,” said Kenichi Hirano, operating officer at Tachibana Securities.

Precision machinery makers with heavy exposure to euro zone countries, such as Kyocera Corp and Olympus Corp, were among the biggest losers after the euro hit a three-week low against the yen on Thursday. Kyocera fell 1.1 percent and Olympus lost 1.4 percent.

In contrast, Inpex Corp, Japan’s top oil and gas developer, jumped 3 percent as European benchmark Brent crude oil climbed to its highest price in more than two years, supported by unusually frigid weather that has fueled demand and depleted supplies.

(Editing by Chris Gallagher)

Nikkei down on yen strength in holiday-thinned trade