Nikkei edges lower in choppy trade as yen weighs

By Aiko Hayashi and Chikafumi Hodo

TOKYO (BestGrowthStock) – Japan’s Nikkei share average slipped on Tuesday as the yen hovered near a record high against the dollar, adding to investor caution before the peak of the corporate earnings season.

Although the Nikkei briefly turned positive in the afternoon, helped by what some analysts said was buying of futures and short-covering, it remained stuck in a narrow range.

Traders were hesitant to take fresh long positions after the yen firmed to a fresh 15-year peak of 80.41 against the dollar on Monday, approaching a record high of 79.75 yen.

“It seems like it’s only a matter of time until the yen hits a record high, and given the situation, I think it’s hard to justify buying stocks now,” said Kazutaka Oshima, president of Rakuten Investment Management.

The benchmark Nikkei (.N225: ) closed down 0.3 percent at 9,377.38, while the broader Topix (.TOPX: ) fell 0.4 percent to 817.94.

Trade was light on the Tokyo exchange’s first section, with some 1.5 billion shares changing hands, near a one-month low hit on Monday. Declining stocks outnumbered advancers, 881 to 603.

Shares of Sony (6758.T: ), however, saw their most active trade in three months. It was also the most actively traded stock in value terms on the first section.

Sony rose nearly 3 percent at one stage as traders cited media reports speculating that the electronics maker could be a potential acquisition target of Apple Inc (Read more about Apple stock future.) (AAPL.O: ). The stock later lost steam and ended up 0.7 percent at 2,742 yen.

On the whole, traders said the market will continue to seek direction from moves in the dollar/yen rate, and investors grew particularly cautious as they awaited a slew of earnings reports this week, including from Canon Inc (7751.T: ) on Wednesday and Sony on Friday.

“Given the strength in the yen, investors have begun to worry that major companies will need to bring down their assumption rates for dollar/yen and the possibility that that would lead to downward revisions to their earnings outlooks,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

The Nikkei is expected to be supported at last week’s intraday lows around 9,310-9,320, with the upper level of its daily Ichimoku cloud near 9,300 also seen as key technical support.

Some technical resistance is seen at the 25-day average, now at 9,498.

“Investors could start buying on dips if the Bank of Japan can come up with further measures to bolster the economy or if the market can be convinced that the yen’s firmness will be limited around 80 (against the dollar),” said Ryosuke Okazaki, chief investment officer at ITC Investment Partners.

The BOJ is scheduled to hold a policy meeting on Thursday following surprise credit easing measures earlier this month when it pledged to pump more liquidity to keep interest rates virtually at zero.

YEN WOES

In Asian trade, the yen was little changed at 80.75 yen against the dollar. The strength of the yen weighed on shares of exporting companies including Toyota Motor (7203.T: ), which fell 0.9 percent to 2,866 yen.

Of the top three Japanese automakers, analysts have said Toyota was in a relatively tough spot because it produces a high 40 percent of its vehicles at home, exporting about half of that.

If Toyota lowers its dollar rate assumption to 80 yen for the October-March second half, from the current 90 yen, that would translate into a foreign exchange loss of 150 billion yen. By comparison, Honda built less than 30 percent of its cars in Japan last month.

Canon Inc (7751.T: ) fell 1.1 percent to 3,705 yen and Fanuc (6954.T: ) lost 1.2 percent to 11,120 yen.

Astellas Pharma (4503.T: ) dropped 1.1 percent to 3,025 yen after the Nikkei business daily said the drugmaker is expected to post a lower operating profit for the year ending in March 2011, hurt by goodwill write-offs.

Some resource stocks gained after commodities surged on Monday as the dollar tumbled on market perceptions that the Group of 20 countries at their weekend meeting did not agree on concrete steps to stop competitive currency devaluations.

Inpex Corp (1605.T: ), Japan’s top oil explorer, rose 0.9 percent to 438,000 yen.

GS Yuasa Corp (6674.T: ), Japan’s top car battery maker, rose 0.4 percent to 580 yen after it increased its net profit estimate for April-September to 2.5 billion yen from 1.5 billion yen, citing a strong performance from its overseas subsidiaries.

(Editing by Chris Gallagher)

Nikkei edges lower in choppy trade as yen weighs