Bloomberg News

Japan’s Nikkei 225 Hits Four-Week High on ECB Bond Plan

August 07, 2012

Japanese stocks gained for a second day, with the Nikkei 225 Stock Average (NKY) closing at a four-week high, amid optimism Germany will support the European Central Bank’s bond-buying plan to ease the region’s debt crisis.

Brother Industries Ltd. (6448), a maker of office equipment that relies on Europe for almost 30 percent of its sales, jumped 4.3 percent. Nippon Paint Co. soared 4.9 percent after boosting its earnings forecast. Sharp Corp. rebounded from a 37-year low yesterday on speculation Foxconn Technology Group would follow through with its investment in the electronics maker. Kansai Electric Power Co., which has plunged 29 percent in the past 30 days, gained 10 percent to lead gains among utilities.

The Nikkei 225 Stock Average rose 0.9 percent to 8,803.31 at 3 p.m. in Tokyo, the highest close since July 11, with volume 7.6 percent below the 30-day average ahead of the Bank of Japan’s meeting tomorrow. The broader Topix (TPX) Index gained 1.1 percent to 743.70. More than two shares rose for each that fell.

“There are expectations that the ECB’s bond-purchasing plan will ease debt crisis tensions, bolstering markets,” said Kiyoshi Ishigane, a Tokyo-based strategist at Mitsubishi UFJ Asset Management Co., which oversees about $70 billion. “Earnings are just so-so on the whole. Some technology companies have been hurt by the stronger yen but I don’t have an impression that their earnings are very bad.”

Futures on the Standard & Poor’s 500 Index were little changed today. The gauge rose 0.2 percent yesterday after German Chancellor Angela Merkel’s government backed the ECB’s bond- buying plan announced last week, according to spokesman Georg Streiter.

Brother Industries jumped 4.3 percent to 803 yen. Ricoh Co., an office-equipment and camera company that gets more than a fifth of its revenue in Europe, climbed 1.7 percent to 608 yen.

Euro Yields

Yields on Spanish and Italian bonds dropped amid speculation the ECB will buy the securities in an attempt to calm euro-region turmoil. Policymakers in Spain are resisting pressure to formally request aid from the ECB.

“Merkel’s decision will eventually have a big impact, helping ease concerns on the European crisis,” Mitsubishi UFJ Asset Management’s Ishigane said.

The Topix has rebounded 6.9 percent since this year’s low on June 4 as central banks around the world ease policy to support growth. The Bank of Japan is scheduled to start a two- day policy meeting tomorrow in which it is expected to refrain from additional monetary easing due to its view that the economy is experiencing a moderate recovery, the Nikkei reported, without citing anyone.

The price of shares on the gauge stood at 0.9 times book value, compared with 2.2 times for the Standard & Poor’s 500 Index and 1.5 times for the Europe Stoxx 600 Index. A number less than one means that companies can be bought for less than value of their assets.

Earnings Season

A third of the Topix’s 1,672’s companies are scheduled to release earnings this week. Of the 277 companies that have reported since July 1 that have issued forecasts, 49 percent have exceeded expectations, according to Bloomberg data.

Nippon Paint (4612) soared 4.9 percent to 682 yen after raising its operating profit forecast 20 percent to 21.6 billion yen ($276 million) for the fiscal year ending March 31, citing “favorable” sales of paints used for cars. Tokai Carbon Co. plunged 18 percent to 263 yen, the biggest drop on the Nikkei 225, after cutting its full-year earnings outlook.

Utilities gained the most among the Topix’s 33 industry groups after dropping 15 percent over the past four weeks on uncertainty about the future of nuclear power in the country. Kansai Electric soared 10 percent to 646 yen, the biggest gainer on the Nikkei 225. Tohoku Electric Power Co. surged 12 percent to 548 yen today after declining almost 30 percent in the past four weeks.

‘Ship Without Anchor’

“For the past month, utility shares declined too much and are rebounding,” said Reiji Ogino, an analyst at Mitsubishi UFJ Morgan Stanley. “It’s like a ship without an anchor. The shares are floating and fluctuating on the wave of market movements because nobody knows the future of utilities and the bottom of stock valuations.”

Sharp rebounded 1.1 percent to 183 yen after falling to a 37-year low yesterday. The shares recovered as Foxconn pledged to forge ahead with its investment in the electronics maker, which it needs to supply key components for Apple Inc.’s iPad and iPhone.

A computer error earlier shut trading of Topix derivatives, Japanese government bond futures and options on the Tokyo Stock Exchange from 9:20 a.m. to 10:55 a.m., the bourse said. The exchange’s second major malfunction in seven months may have contributed to declines in Japanese bonds, according to Makoto Suzuki, a senior strategist at Okasan Securities Co., one of the 25 dealers obliged to bid at government debt sales.

-- With assistance from Adam Haigh in Sydney. Editor: Jim Powell

To contact the reporter on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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