Nikkei hits 18-month high, more gains seen next quarter

By Elaine Lies

TOKYO (BestGrowthStock) – Japan’s Nikkei average hit an 18-month intraday high before paring gains on Wednesday, the final day of the financial year, but further gains were expected in the new quarter as a global economic recovery picks up strength.

In what could be an indicator of things to come, a rebound in March U.S. consumer confidence data released on Tuesday, along with a slight improvement in optimism about the labor market, helped buoy Tokyo shares, market players said.

The Nikkei climbed 5.2 percent in the January-March quarter, and rose about 37 percent in Japan’s 2009/10 financial year, though market players said light profit-taking by investors helped limit gains on Wednesday.

“Improvement in the global economy and world stock markets — the Dow is nearly back at the level it was when Lehman collapsed — will mean still further improvement in the Nikkei over the April-June quarter,” said Fumiyuki Nakanishi, group manager at SMBC Friend Securities.

“Investor sentiment is likely to improve still more from April, when we have things like the Bank of Japan’s tankan survey (of business sentiment.) We may try 12,000 in April.”

On the last day of the quarter and Japan’s financial year, the benchmark Nikkei inched down 0.1 percent or 7.20 points to close at 11,089.94 after rising as far as 11,147.62, its highest intraday level in about 18 months.

The broader Topix dipped 0.1 percent to 978.81.

Some 2.0 billion shares traded hands on the Tokyo exchange’s first section, dipping from Tuesday’s three-week high of around 2.2 billion shares.

Declining shares outnumbered advancing ones by 812 to 723.

Buoyed by the global economy’s recovery trend, the sea transport sector and commodities-related sectors such as metal products and nonferrous metals have been among the top gainers among sub-indexes so far this year, while defensive sectors such as food, as well as pharmaceuticals, have lagged behind.

The Nikkei’s relative strength index (RSI) has edged over 70, above which the market is considered overbought, but directional indicators such as MACD show the Nikkei is still on an uptrend.

The Nikkei’s next major upside target lies near 11,310. That would be roughly a 38.2 percent retracement of the drop from a peak in 2007 to a trough in 2008.

“Though in the short term there are concerns about overheating, over the mid to longer term things are looking quite bright, what with expectations for Japanese earnings this year, rising trading volumes, and continued buying by foreigners,” said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.

A wave of foreign buying by investors seriously underweight Japan, which last year lagged much of the world in recovering, has helped the Nikkei play catch-up this year.

Foreign investors bought a net 127.7 billion yen ($1.38 billion) in Japanese shares in the week ending March 19, bringing their total net buying for the year to more than 1.9 trillion yen, Finance Ministry data showed. That compares with net buying of just 28.7 billion yen for all of 2009.

The yen’s retreat from a 14-month peak against the dollar near 84.80 yen hit in late November lent support to the Nikkei this quarter. On Wednesday, the yen slid to a three-month low of 93.60 yen to the dollar on trading platform EBS.

Share-specific factors rather than broader market ones dominated play.

Shares of Alps Electric Co Ltd edged up 0.8 percent to 645 yen after the Nikkei newspaper said a state-backed fund would invest in an electronics components unit to be split off from the electronics components maker.

The state-backed Innovation Network Corp of Japan has decided to invest 3 billion yen ($32 million) in the unit, a venture with Tohoku University working on technology for components used in current regulators and transformers, the Nikkei said.

Alps Electric had risen by as much as 8 percent at one point before giving up a large part of its gains. Its volume jumped to nearly four times its 30-day moving average.

Iwai Securities fell 4.4 percent to 588 yen after the broker announced that negotiations to buy CSK Holdings unit Cosmo Securities had been broken off.

Shares of CSK, a developer of computer systems, fell 1.7 percent to 406 yen.

Stock Market Advice

(Additional reporting by Masayuki Kitano; Editing by Michael Watson)

Nikkei hits 18-month high, more gains seen next quarter