TOKYO, May 16: Japan’s Nikkei stock average eased on Thursday morning as banks weighed after offering poor earnings guidance, while investors wasted little time pocketing recent gains amid some caution over recent market momentum.
The market was also dented by weak capital spending by companies for the first three months through March.
Official figures published on Thursday morning showed Japan’s economy grew at a faster-than-expected 0.9 percent in January-March from the previous quarter, but capital investment dropped 0.7 percent – inverting the market’s expected 0.7 percent rise.
The benchmark Nikkei dropped 1.1 percent to 14,932.95 by the midday break, after rising as high as 15,155.72, levels last visited in January 2008.
‘It’s just a healthy correction after such steep rises in Nikkei. The stocks had moved a little too fast,’ said Ryota Sakagami, chief equity strategist at SMBC Nikko Securities.
‘But it’s difficult to predict how long the correction phase will last. There are very few investors who are pessimistic on the Japanese stocks in the medium to long term.’
Traders said the market will likely remain choppy on Thursday, hovering around the 15,000-mark back and forth all day.
Bucking the trend, Olympus Corp soared 13.3 percent after the camera and endoscope maker forecast a 274 percent rise in net profit at 30 billion yen ($293 million) for the current business year through March, citing strong medical business and a weaker yen.
JPMorgan raised its rating to ‘overweight’ from ‘neutral’ and hiked its target price by 50 percent to 3,600 yen, noting: ‘Olympus’s plan to turn the image systems business profitable seems realistic.’
Japan’s top three banks, however, forecast weaker annual earnings on Wednesday as aggressive monetary easing squeezes them out of a profitable government bond trade.
Mitsubishi UFJ Financial Group dropped 2.9 percent, Mizuho Financial Group shed 2.7 percent and Sumitomo Mitsui Financial Group fell 2.4 percent.
Market observers said that the central bank’s plan to purchase 70 percent of Japanese government bonds, part of its aggressive monetary easing, should be negative for banks’ profits.
‘If banks have strong lending businesses that can make up for the damage on JGB trading gains, there should be no problem. But company managements’ risk-averse stance on capital spending indicates weak profits for banks,’ said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
The broader Topix dropped 1.5 percent to 1,234.66.
LONGER TERM PICTURE INTACT
The short-term pullback has been widely expected. But in the longer term market analysts expect further rises in the Japanese market.
U.S. Star bond investor Jeffrey Gundlach, who heads DoubleLine Capital LP, said on Wednesday that the benchmark Nikkei will hit 17,000 before year-end.
The index has gained 44 percent this year helped by Prime Minister Shinzo Abe’s bold monetary easing and expansionary policies.
On the back of strong jobs data in the United States and the dollar punching through the 100-yen mark early this month, the Nikkei broke above 15,000, the level investors once had expected to see around mid-June.
The yen dropped to 102.76 yen against the dollar on Wednesday, its lowest level since October 2008. The Japanese currency last traded at 102.14 to the dollar. (agencies)
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