Nikkei up on firmer China shares, softer yen

By Antoni Slodkowski and Chikafumi Hodo

TOKYO (BestGrowthStock) – Japan’s Nikkei average clawed back toward a seven-month high on Monday as Chinese shares showed resilience to Beijing’s efforts to curb inflation and a softer yen supported exporters.

The market has been jittery about tightening steps in China, so investors in Tokyo greeted with relief an increase in bank reserve requirement ratios on Friday, followed by Monday’s gains in closely watched Chinese equities, adding to the positive mood.

Foreign funds have been aggressively buying lagging Tokyo shares, pushing the Nikkei up more than 12 percent over the past six weeks. The benchmark remains an underperformer globally on the year, however, having shed around 2.4 percent year to date.

“The market started gaining after investors saw that Chinese stocks reacted positively to the weekend’s data, but investors shied away from taking up new positions ahead of a raft of inflation-related data from the U.S.,” said Teruhisa Ishikawa, a manager at Mizuho Investors Securities.

Market players will look for signs of swifter recovery in the United States, the world’s biggest economy, in the producer price index due on Tuesday and the consumer price index on Wednesday.

The benchmark Nikkei (.N225: ) closed the day up 0.8 percent or 81.94 points at 10,293.89.

The broader Topix index (.TOPX: ) rose 1 percent to 897.40.

Volume was solid at 2.1 billion shares exchanging hands on the Tokyo Stock Exchange’s first section, coming close to the last week’s closing average.

“Tokyo stocks remain very firm as prospects for the global economy and global shares are improving. The yen’s weakness is also helping Japanese stocks,” said Ryosuke Okazaki, chief investment officer at ITC Investment Partners Corp.

Exporters, who mostly assumed a dollar/yen rate of 80-83 yen for their earnings estimates, outperformed the market as the dollar held steady at around 84.14 yen supported by higher Treasury yields after improving U.S. data late last week.

Construction machinery maker Komatsu Ltd (6301.T: ) gained 1.4 percent and carmaker Mitsubishi Motors Corp (7211.T: ) climbed around 1.7 percent.

Still, short-term technical trends signaled the Nikkei remained overheated, which inhibited investors from chasing Tokyo stocks strongly on rallies, analysts said.

“Looking back at this year, we see that around the 10,200 level profit-taking tends to emerge and the Nikkei struggles to decisively break this resistance,” Ishikawa said.

He said if the Nikkei cannot pierce this key technical level until around December 20 it would be hard for it to post more gains this year as most investors will wait for 2011 to take new positions.

The toraku or up-down ratio, which measures how much the market is overheated, is at 151. A market with a figure above 120 is considered to be overheating.

The ratio is calculated by dividing the 25-day moving average of stocks that gained by the 25-day average of those that fell.

The Nikkei reached a fresh seven-month high of 10,373.70 on Friday, with strong technical resistance seen at 10,420.74 — the level where futures and options contracts expiring in December settled on Friday.

POLITICAL INSTABILITY A PROBLEM

Market players also said they were closely watching a deepening rift in the ruling Democratic Party of Japan which could delay decisions on a draft budget for the year from next April 1 and related tax reforms, including a corporate tax cut that firms want to boost global competitiveness.

“The problem at the moment is that we’ve got a lot of huge problems in Japan and they are just not being dealt with,” said Nicholas Smith, director of equity research at MF Global FXA Securities in Tokyo.

“Foreigners are watching this very closely,” he said, adding that the strife in the ruling party would affect a wide range of policies from a possible future rise in the 5 percent sales tax to fix Japan’s debt-laden public finances to passage of the budget for the year starting next April 1.

Advancing issues outpaced declining ones by a ratio of about 7 to 1.

(Additional reporting by Ayai Tomisawa; Editing by Michael Watson)

Nikkei up on firmer China shares, softer yen