Nikkei falls as GDP data hurts exporters

By Aiko Hayashi and Elaine Lies

TOKYO (BestGrowthStock) – The Nikkei average fell 0.6 percent on Monday after data showed Japan’s economy slowed sharply in the April-June quarter, with investors eyeing the yen’s impact on corporate profits should the currency strengthen further.

But losses were limited after support for the benchmark held last week at just over 9,000, while charts showed it approaching oversold levels, suggesting it was perhaps due for a bit of a rebound.

Japan’s gross domestic product grew a much slower-than-expected 0.1 percent in April-June, translating into an annualized increase of 0.4 percent, as export growth moderated and a stimulus-driven recovery in consumption ran out of steam. That was far below 4.4 percent annualized growth in the first three months of the year.

“The GDP figures were worse than economists’ expectations, but market participants had already grown significantly cautious and the poor numbers weren’t really a huge surprise to the market,” said Junichi Misawa, senior fund manager at STB Asset Management.

“That said, we rarely see positive surprises these days and the market remains under pressure. Still, the Nikkei is already at a level where it has factored in a pretty bad scenario for the state of the economic recovery, and it looks to be consolidating around 9,000 for now.”

The benchmark Nikkei shed 56.79 points to 9,196.67, its lowest finish since July 1. It pared losses that at one point took it down nearly 2 percent to 9,095.94, within sight of the 13-month low of 9,065.94 hit last week.

The broader Topix inched down 0.3 percent to 828.63.

The dollar dipped against the yen, losing 0.4 percent to 85.85 yen. It hit a 15-year low of 84.72 yen on electronic trading platform EBS last week.

“The economy is undershooting the Bank of Japan’s forecast that while growth may slow somewhat, Japan is still on a recovery track. The economy may enter a lull late this year or early next year, or even stagnate,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute.

“The Bank of Japan acting alone won’t have much effect. Currency intervention will be most effective and could become a possibility if the yen heads toward 80 to the dollar.”

Market players said that while the yen’s rise has yet to have much of an impact on company earnings forecasts for later in the year, that could change should the yen’s advance continue.

Some said downward revisions would likely become a serious concern if dollar/yen hit around 80 yen and euro/yen touches around 100 yen.

“Quite a number of companies set their dollar/yen rate assumptions at 90 yen for the year to next March, and I don’t think they’re that worried yet,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

“But should the yen continue to advance, they may be forced to lower their rate assumptions still further, and this of course would have a negative impact on forecasts.”

MIXED TECHNICALS

Technically, the Nikkei may be due for a bit of a rebound.

The benchmark dipped below its lower Bollinger Band before slightly coming back up, while its relative strength index (RSI) hovered around 39. Anything at 30 and below is considered oversold.

The Nikkei’s slow stochastic also hovered on the edge of oversold territory.

But over the longer term, last week’s “death cross” of the Nikkei’s 200-day moving average and 100-day moving average is likely to keep the benchmark under pressure, an analyst said. A “death cross” is often seen as a sell signal.

Exporters slipped broadly. Sony Corp slid 3 percent to 2,535 yen and TDK Corp lost 3.1 percent to 4,550 yen. Honda Motor Co retreated 0.9 percent to 2,765 yen.

But Asahi Breweries climbed 2.4 percent to 1,604 yen after China’s Economic Observer reported that Tsingtao Brewery Co Ltd plans to buy a 45 percent stake in Hangzhou Xihu Asahi Beer Co, a joint venture with Asahi, for up to 2 billion yuan ($294.4 million).

Gree shares jumped 6.3 percent to 6,740 yen after the company said on Friday it had overtaken Mixi Inc to become Japan’s biggest social networking site, having seen a near tripling in subscribers in the past two years as users flocked to its mobile games.

Gree had 21.13 million users by the end of July compared with 21 million for Mixi.

So-called “defensive” shares, which are seen as a good investment in the face of economic turmoil overseas, gained, helping to check the benchmark’s falls. Drugmaker Astellas Pharma Inc rose 1.9 percent to 2,933 yen.

Trade was thin, with 1.3 billion shares changing hands on the Tokyo exchange’s first section, but off the eight-month low of 1.25 billion shares hit last Monday.

Declining shares outnumbered advancing ones, 986 to 529.

(Editing by Chris Gallagher)

Nikkei falls as GDP data hurts exporters