Nikkei rises 1.3 percent but yen strength limits gains

By Elaine Lies and Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average rose 1.3 percent on Thursday, buoyed by short-covering and bargain-hunting by domestic investors after falls earlier this week, but the yen’s overall strength against the dollar capped further gains.

Investors are awaiting the outcome of a meeting expected on Monday between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa, and speculation has heightened that the central bank may ease monetary policy further ahead of the meeting.

The Sankei newspaper reported on Thursday that the BOJ may either expand the size of its fund supply to 30 trillion yen ($352 billion) from the current 20 trillion yen, or extend the duration of cheap, fixed-rate loans to banks to six months from the present three months.

The report helped buoy the Nikkei by boosting the dollar, but market players said that until the greenback manages to recover above 86 yen, rises are likely to remain limited.

“There’s certainly expectations in the stock market for the Kan-Shirakawa meeting, which of course raises the danger that if nothing comes out in the way of policy stocks could fall, especially if the yen strengthens,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

While some market players said the newspaper report was significant because it was the first time any specific numbers were mentioned, they also noted that the impact had been limited, raising doubts about the effectiveness of any move that will ultimately be announced if it doesn’t deal with the yen’s recent gains that last week took it to a 15-year high.

Market players say that if the dollar breaks below 85 yen, the Nikkei could also fall below 9,000. The dollar rose 0.5 percent to 85.84 yen on Thursday.

“The Nikkei remains at a precarious level. If U.S. stocks (Read more about the stock market today. ) were to slide on some negative news again, the index could easily go below 9,000. The market is stuck in range trade in an environment with risk potential,” said Kenichi Hirano, operating officer at Tachibana Securities.

“There are hopes in the market for the Kan-Shirakawa meeting, but what they will really need to emphasize at the end is their support for a weaker yen, rather than a couple of economic measures.”

The benchmark Nikkei (.N225: ) gained 122.14 points to 9,362.68, while the broader Topix (.TOPX: ) rose 1.1 percent to 843.96.

HOLDING THE LINE

Whether the Nikkei can stay above 9,000 is a big focus this week, market players say, though downside tries have been checked just under 9,100 several times over the past week. The same level became support several times last year.

Below that point, the Nikkei’s next support lies at 8,697, a 61.8 percent retracement of the rally between its March 2009 low and April 2010 high.

But resistance is likely around 9,450, the level of the Nikkei’s 25-day moving average.

Canon Inc (7751.T: ) and other exporters gained as the dollar clawed higher against the yen on the Sankei report.

Canon rose 2.8 percent to 3,680 yen, Toyota Motor Corp (7203.T: ) gained 1.8 percent to 3,085 yen and Nissan Motor Co (7201.T: ) added 3.1 percent to 675 yen.

Chip equipment maker Tokyo Electron (8035.T: ) climbed 5.3 percent to 4,370 yen after U.S. peer Applied Materials Inc (AMAT.O: ) forecast quarterly results that beat Wall Street estimates, as well as posting better-than-expected results for the quarter ended August 1.

Property shares also gained on hopes of further BOJ monetary policy easing before next Monday’s meeting.

“Property stocks are attracting buyers because there have been signs of improvement in building vacancy rates and solid apartment sales, and they would also benefit from further policy easing,” a market analyst said.

Mitsui Fudosan (8801.T: ) climbed 3.1 percent to 1,442 yen and Mitsubishi Estate Co (8802.T: ) jumped 3.4 percent to 1,323 yen. Sumitomo Realty & Development Co (8830.T: ) added 2.2 percent to 1,692 yen.

Some 1.66 billion shares changed hands on the Tokyo exchange’s first section, its highest volume in a week.

Advancing stocks outnumbered declining one by more than 2 to 1.

(Reporting by Elaine Lies; Editing by Chris Gallagher)

Nikkei rises 1.3 percent but yen strength limits gains