Nikkei loses ground on economy worry

By Elaine Lies and Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average inched to a nine-month closing low on Monday, dented by selling from what some market players said was hedge funds and foreigners as worry lingered about the pace of economic recovery and the impact of the strong yen.

Disappointment that Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa only spoke over the phone instead of holding a long-expected meeting took the market within sight of a 13-month low, but support held below 9,100.

Markets had been rife with speculation that the BOJ might try to pre-empt government pressure for action and further loosen its already ultra-easy policy at an emergency meeting before or shortly after the expected meeting between Shirakawa and Kan, but the two simply talked about currencies and the economy and agreed to work closely.

“There is definitely some disappointment with the fact that it was a short phone conversation instead of a meeting,” said Nagayuki Yamagishi, strategist at Mitsubishi UFJ Morgan Stanley Securities.

“The market hasn’t fallen further partly because trade is just so thin that nobody’s either buying or selling. Also, there’s hope that the government will come up with some kind of economic stimulus.”

The benchmark Nikkei shed 0.7 percent or 62.69 points to 9,116.69, its lowest close since late November, after falling as low as 9,090.96. The broader Topix lost 0.6 percent to 824.79.

The 9,000 to 9,100 area is seen as strong support after serving as support several times last year, and several attempts this month to break through on the downside to a fresh 13-month low have been checked just under 9,100.

If the Nikkei broke below 9,000 the next support would lie at 8,697, a 61.8 percent retracement of the rally between its March 2009 low and April 2010 high.

Analysts say steps to stem the yen’s rise are crucial for the Nikkei. In Asian trade the dollar was lower at 85.36 yen. It hit a 15-year low of 84.72 yen this month.

“Governments around the world are allowing their currencies to weaken, and if Japan doesn’t do anything about the strength in the yen it could appreciate further and that would put pressure on Japanese stocks,” said Masahiko Sato, an executive director at Nomura Securities’ equity marketing department.

BUYING AT LOWS

Market players said domestic investors such as pension funds were apparently buying the Nikkei at the lows, with an array of sellers that some said included hedge funds and foreign investors.

In orders placed before the open through 10 foreign securities houses, foreign brokers were set to sell Japanese stocks to the tune of 6.2 million shares.

But others said there was little in the way of foreign selling since many foreign investors had already lightened their portfolios. Instead there was some light short-covering.

“I think there still isn’t that much foreign investor interest in Japan — after all, the growth scenarios aren’t all that good compared to places like Indonesia. Worry about the strong yen’s impact on earnings going forward will also weigh,” said Yamagishi at Mitsubishi UFJ Morgan Stanley.

Canon Inc slipped 1.4 percent to 3,550 yen and Tokyo Electron Ltd shed 2.5 percent to 4,260 yen. Honda Motor Co fell 0.5 percent to 2,805 yen.

Fuji Electric fell 5.4 percent to 210 yen after Mitsubishi UFJ Morgan Stanley Securities cut its rating to “3” from “2” and lowered the target price to 230 yen from 320 yen, citing weak short-term recovery prospects.

Shares of Asahi Breweries rose 0.6 percent to 1,629 yen after sources familiar with the situation said beverage giants SABMiller and Asahi are eyeing Foster’s Group’s beer operations but have not decided whether to make formal offers.

The foods subindex was down 0.2 percent.

Trade was thin on the Tokyo exchange’s first section, with 1.28 billion shares changing hands, its lowest volume in two weeks. Declining stocks outnumbered advancing ones by more than 2 to 1.

(Reporting by Elaine Lies; Editing by Chris Gallagher)

Nikkei loses ground on economy worry