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Japan's Nikkei share index hits 21-month high Japan's Nikkei share index hits 21-month high
(about 1 hour later)
The Nikkei share average ended at a 21-month high on Thursday, led by exporters and financial stocks, as the new Japanese prime minister's vow to battle deflation and a strong currency buoyed investor risk appetite.The Nikkei share average ended at a 21-month high on Thursday, led by exporters and financial stocks, as the new Japanese prime minister's vow to battle deflation and a strong currency buoyed investor risk appetite.
The Nikkei advanced 0.9% to 10,322.98, rising for the third consecutive session and taking the index deeper into "overbought" territory, with its 14-day relative strength index at 77.7, far above 70 which is considered overbought and often indicates an imminent pullback.The Nikkei advanced 0.9% to 10,322.98, rising for the third consecutive session and taking the index deeper into "overbought" territory, with its 14-day relative strength index at 77.7, far above 70 which is considered overbought and often indicates an imminent pullback.
The benchmark has advanced 19.2% over the past six weeks, taking the year-to-date increase for the Nikkei to 22.1%, outpacing a 12.9% rise in the US S&P 500 and a 14.7% gain in the pan-European Stoxx Europe 600. The benchmark has advanced 19.2% over the past six weeks, taking the year-to-date increase for the Nikkei to 22.1%, outpacing a 12.9% rise in the US S&P 500 and a 14.7% gain in the pan-European Stoxx Europe 600. It is on track to log its best yearly gain since 2005.
It is on track to log its best yearly gain since 2005.
"People are back in the office today … and putting on some positions based on what we saw after the cabinet appointment and LDP policy decision," a dealer at a foreign brokerage said, referring to the ruling party."People are back in the office today … and putting on some positions based on what we saw after the cabinet appointment and LDP policy decision," a dealer at a foreign brokerage said, referring to the ruling party.
The finance minister, Taro Aso, said prime minister Shinzo Abe has ordered him to compile a stimulus package without sticking to the previous government's cap on new bond issues, signalling a more aggressive policy to kickstart the ailing economy.The finance minister, Taro Aso, said prime minister Shinzo Abe has ordered him to compile a stimulus package without sticking to the previous government's cap on new bond issues, signalling a more aggressive policy to kickstart the ailing economy.
But Aso also tried to quell concern about the country's weak finances, saying the government will not rely solely on debt to fund economic stimulus and will try to limit new debt issuance next fiscal year.But Aso also tried to quell concern about the country's weak finances, saying the government will not rely solely on debt to fund economic stimulus and will try to limit new debt issuance next fiscal year.
"We need to make public finances sustainable in the medium to long term," he said."We need to make public finances sustainable in the medium to long term," he said.
Financials such as insurance stocks rose. Dai-ichi Life Insurance added 2% and T&D Holdings gained 3.9%.Financials such as insurance stocks rose. Dai-ichi Life Insurance added 2% and T&D Holdings gained 3.9%.
Exporters benefiting from a weaker yen included Toyota, Honda, TDK and Panasonic, all up between 1% and 2.6%.Exporters benefiting from a weaker yen included Toyota, Honda, TDK and Panasonic, all up between 1% and 2.6%.
The yen hit a more than two-year low of 85.835 yen to the dollar. A weaker yen helps lift exporters' overseas earnings when repatriated, improving their competitiveness, particularly against South Korean and Chinese rivals.The yen hit a more than two-year low of 85.835 yen to the dollar. A weaker yen helps lift exporters' overseas earnings when repatriated, improving their competitiveness, particularly against South Korean and Chinese rivals.
Helped by the drop in the yen, the pace of deterioration in Japanese companies' earnings outlooks has slowed further in December.Helped by the drop in the yen, the pace of deterioration in Japanese companies' earnings outlooks has slowed further in December.
Their one-month earnings momentum – analysts' earnings upgrades minus downgrades as a total of estimates – stood at -7.2%, versus -10.9% in November and -12.2% in December.Their one-month earnings momentum – analysts' earnings upgrades minus downgrades as a total of estimates – stood at -7.2%, versus -10.9% in November and -12.2% in December.
On top of Thursday's gains in stocks that benefited from the new government's policy, shares in other sectors such as paper and personal finance also attracted buying.On top of Thursday's gains in stocks that benefited from the new government's policy, shares in other sectors such as paper and personal finance also attracted buying.
But traders said such buying could fizzle out at any time as investors seem to have overlooked fundamentals.But traders said such buying could fizzle out at any time as investors seem to have overlooked fundamentals.
"Even junk stocks like consumer finances are rising … individual traders who are trading short-term could be buying them while forgetting that their earnings are far from rosy," said Makoto Kikuchi, the chief executive of Myojo Asset Management."Even junk stocks like consumer finances are rising … individual traders who are trading short-term could be buying them while forgetting that their earnings are far from rosy," said Makoto Kikuchi, the chief executive of Myojo Asset Management.
"They may be hoping that the LDP-led government will be relaxing regulations on the sector, but I don't think it's rational buying, and it could trigger profit-taking in any moment," Kikuchi said."They may be hoping that the LDP-led government will be relaxing regulations on the sector, but I don't think it's rational buying, and it could trigger profit-taking in any moment," Kikuchi said.