Japan's Nikkei reaches 4-month closing high on BOJ easing

Wed Sep 19, 2012 2:45am EDT

* BOJ raises asset purchases by 10 trln yen to 80 trln yen
    * Exporters gain as yen weakens on the back of the BOJ move
    * Fast Retailing recovers from Tues battering on China fears

    By Dominic Lau
    TOKYO, Sept 19 (Reuters) - The Nikkei average hit a
four-month closing high on Wednesday after the Bank of Japan
eased monetary policy to bolster an export-driven economy that's
struggling with sluggish global demand and fallout from a
territorial dispute with China, Japan's biggest trading partner.
     On the heels of another round of stimulus by the U.S.
Federal Reserve, the BOJ said it would expand its asset buying
and loan programme by 10 trillion yen ($127.21 billion) to 80
trillion yen. 
     The announcement weakened the yen to a one-month low of
79.23 yen to the dollar, which in turn lifted the shares of
exporters. A strong yen is usually a negative factor for
exporters as it eats into profits earned abroad as well as
making their products uncompetitive.
     While China is a concern, developments in developed
nations, particularly in the U.S., look encouraging, said Stefan
Worrall, director of equity sales at Credit Suisse in Tokyo. He
added that the BOJ's move "provides support that we haven't
seen" since February when the central bank eased policy. 
     The Nikkei ended 1.2 percent higher at 9,232.21 in
brisk volume after rising as much as 9,288.53, or 1.8 percent.
     The BOJ surprised the market in February by expanding its
asset purchases programme, which helped the Nikkei rally 10
percent in the subsequent month and pushed the yen about 7
percent weaker against the dollar over the same period.
     The Nikkei is up 9.2 percent so far this year,
underperforming a 16 percent rise in the U.S. S&P 500 and
an 11 percent gain in the pan-European FTSEurofirst 300
.
     Toyota Motor Corp, Honda Motor Co, Canon
Inc and Sony Corp advanced between 1.7 and 2.7
percent on Wednesday.
     Nissan Motor Co rebounded 3.7 percent after
sagging 5 percent on Tuesday following its suspension of
production in China on concerns over escalating anti-Japanese
protests.
     The company said it would resume production at four plants
in Guangzhou and Zhengzhou in China on Wednesday. 
     Other Japanese companies have also announced resumption of
operations in China, easing concerns over the impact on their
earnings.
     But a trader at a foreign bank said the production halt by
Japanese companies could be good news as it might reduce excess
inventories.    
     Index heavyweight Fast Retailing Co Ltd recovered
3.3 percent, as it reopened most of the 40 casual-clothing
stores it had closed in China on Tuesday in a move that had
triggered a 7 percent slide in the share price.
    The broader Topix index gained 0.9 percent to
764.80, with nearly 2.08 billion shares changing hands, up from
Tuesday's 1.8 billion and last week's average of 1.62 billion.
    
    BANKING ON REAL ESTATE    
    "People were in wait-and-see mode this morning, and were
concerned that the BOJ would do nothing and the yen would shoot
up. But now a flood of short-covering has gushed into the
market, that's all it is," said Yoshihiro Ito, chief strategist
at Okasan Online Securities.
    The BOJ move also boosted banks and the real
estate sector, which were in negative territory
before the central bank decision. But investors locked in
profits, leaving the real estate sector up 0.9 percent and the
banking segment up 0.2 percent.
    Real estate companies Mitsui Fudosan, Mitsubishi
Estate Co Ltd and Sumitomo Realty & Development Co Ltd
 were up between 0.7 and 1.5 percent.
    Goldman Sachs recommended investors to stay overweight in
domestic-focused stocks such as real estate due to the
uncertainty arising from mounting tensions between China and
Japan.
    "China-related Japan stocks have been underperforming Topix
since April 2012 as a result of the slowdown in Chinese growth.
Nevertheless, until there is greater clarity on the situation,
we believe related stocks may continue to face near-term
pressure," Goldman Sachs strategists said in a note.
    "We continue to suggest overweight positions in domestic
demand-oriented areas such as real estate and financials where
news flow generally remains positive," they wrote.