Nikkei drops in thin trade on losses in China

* Volume at 2-week low as foreigners absent before Christmas

* Topix will likely rise 20 percent in next six mths-analyst

By Ayai Tomisawa and Antoni Slodkowski

TOKYO, Dec 20 (BestGrowthStock) – Japan’s Nikkei dropped 0.9 percent
in thin trade on Monday, with sentiment soured by a declining
China market.

“Selling (in the Japanese market) is due to external reasons,
and as there are fewer foreign participants in the market, low
volume is causing volatility,” said Hideyuki Okoshi, general
manager at Chuo Securities.

Losses in China-related stocks weighed on the market. Komatsu
Ltd (6301.T: ), which relies on China for about 20 percent of its
sales of construction and mining equipment, shed 1.9 percent to
2,453 yen and Hitachi Construction Machinery Co (6305.T: ) was 2.1
percent lower at 1,937 yen.

Industrial robot maker Fanuc Ltd (6954.T: ), whose share price
has been lifted by growing demand in China, fell 1.8 percent to
12,150 yen.

Uncertainty over Japan’s political situation also dampened
the mood of investors.

Japanese Prime Minister Naoto Kan said on Monday that ruling
party powerbroker Ichiro Ozawa rejected a call to appear at a
parliamentary ethics panel over a funding scandal, threatening to
widen a rift in the fractious party. [ID:nTOE6BJ03O]

“Markets are watching out for the long-term implications of
the feud closely. Prolonging the present situation without any
clear outcome would be the worst outcome for the market,” said
Yumi Nishimura, a senior markets analyst at Daiwa Securities
Capital Markets.

“The rivalry has already been dragging for some time, and if
it continues to drag it will likely have strong negative
implications for the government’s policies next year,” Nishimura
said.

The Nikkei (.N225: ) fell 87.42 points to 10,216.41,
approaching support at 10,116.53, its 25-day moving average, a
gauge closely followed by Tokyo investors.

The broader Topix index (.TOPX: ) declined 0.5 percent to
898.55.

Asian shares eased, led by a drop of as much as 3 percent in
China’s key stock index (.SSEC: ) as a shortfall of money flows
ahead of the year-end in a tight monetary environment pressured
the market. [ID:nTOE6BJ033]

After hitting its highest closing level since May last
Tuesday, the Nikkei stayed flat for the rest of that week as
domestic investors aggressively took profits on its rally of
around 12 percent since the beginning of November, while foreign
investors continued buying financial shares seen as undervalued.

Looking ahead, analysts remain bullish about the performance
of the Japan market.

Kathy Matsui, chief Japan strategist at Goldman Sachs,
predicts the Topix will likely surge 20 percent in the next six
months.

Matsui recommends buying autos and tech stocks because
profits will likely rise as the yen retreats against the dollar
after reaching a 15-year high in October.

“Many investors make the mistake of becoming too emotionally
hung up on Japan’s structural problems and therefore they miss
the cyclical opportunities,” said Matsui. “If you have the stars
aligned with a better U.S. economy, a weaker yen, earnings going
back to 2007 peaks and very underweight foreign investors, that
could easily deliver 15-20 percent.”

LOW VOLUME

Trading volume was the lowest since Dec. 6, with 1.7 billion
shares changing hands on the Tokyo Stock Exchange’s first
section, 19 percent lower than last week’s closing average of
around 2.1 billion shares.

Market players said volumes may dry up further this week as
foreign investors who have been net buyers of Japanese equities
for the last six weeks, helping push the index higher, will be
less active as the Christmas holidays approach.

Sony Corp (6758.T: ) dropped 1.2 percent to 2,930 yen after it
said it was likely to fall slightly short of its ambitious 25
million unit LCD TV sales target for the year to March 2011.

Supermarket operator Uny Co Ltd (8270.T: ) fell 4.2 percent to
778 yen after Macquarie Securities cut its rating to
“underperform” from “neutral.”

But baby goods maker Pigeon Corp (7956.T: ) rose 4.3 percent to
2,847 yen after Credit Suisse started coverage of the company
with an “outperform” assessment.

Honda Motor (7267.T: ) climbed 1.4 percent to 3,280 yen after
saying on Friday it would target sales in China of 730,000
vehicles in 2011, for growth of more than 10 percent from the
650,000 estimated for this year. [ID:nTOE6BG012]
(Editing by Joseph Radford)

Nikkei drops in thin trade on losses in China