Japan's Nikkei advances on optimism over U.S. fiscal deal

Wed Nov 28, 2012 9:51pm EST

* U.S. optimism of fiscal deal lifts sentiment
    * Exporters rebound after setback
    * Nikkei rises 0.7 pct, Topix gains 0.8 pct

    By Dominic Lau
    TOKYO, Nov 29 (Reuters) - Japan's Nikkei share average
rebounded on Thursday from the previous session's one-week
closing low as investors took comfort from comments by the top
Republican in the U.S. Congress that he was optimistic about
reaching a fiscal deal with the White House.
    The Nikkei advanced 0.7 percent to 9,369.68 points
by the midday break, but was facing resistance at its five-day
moving average at 9,371.41.
    U.S. House of Representatives Speaker John Boehner on
Wednesday voiced optimism that a deal could be reached to avoid
a "fiscal cliff" of $600 billion in spending cuts and tax hikes
starting in the new year. Failure to reach a deal could see the
U.S. economy back in recession and drag down the global economy.
    Boehner's remarks lifted U.S. and European stocks overnight.
    Japan's exporters gained ground on Thursday after a bout of
profit-taking following a recent rally spurred by a weaker yen.
The yen has been under pressure on expectations Japan's main
opposition party will win a Dec. 16 election and increase
pressure on the central bank to adopt a bolder monetary policy.
    "The yen is back safely to the 82 handle (to the dollar).
Yesterday was a bit of a consolidation day. People are happy to
come in today and do a little bit of buying again," a senior
dealer at foreign brokerage said.
    "We are going to be in a grace period until the election ...
Until then, people are prepared to buy into the idea that the
yen is going to weaken further."
    Calls by Shinzo Abe, leader of the main opposition party
Liberal Democratic Party, for the Bank of Japan to set an
inflation target of 2 percent and embark on "unlimited easing"
have weakened the yen sharply over the past two weeks, giving
shares of long-suffering exporters a fillip.
    
    Exporters in demand on Thursday included Toyota Motor Corp
, Canon Inc, Nissan Motor Co and
Hitachi Ltd, which rose between 0.7 and 2.5 percent.
    JFE Holdings climbed 2.6 percent after the Nikkei
business daily said the steelmaker is expected to generate
positive free cash flow of about 100 billion yen ($1.2 billion)
this fiscal year, due to lower costs, smaller inventories and
lower capital expenditures.
    The broader Topix gained 0.8 percent to 777.56, with
volume at 50 percent of its full daily average for the past 90
trading days.
    
    GOLDMAN SACHS UPBEAT
    Goldman Sachs raised its 12-month Topix target by 8.1
percent to 930 from 860. The new target was 19.6 percent above
where the index ended the morning session.
    "Most investors have minimal exposure to Japanese equities,
but if macro and micro fundamentals improve, we see scope for
extreme underweight positions to be reassessed," Goldman Sachs
strategists wrote in a note.
    "Assuming the current underweight 'gap' of EAFE (Europe,
Asia and Far East)-benchmarked international equity funds is
closed, this could imply roughly $60 billion of potential
foreign purchases."
    Foreign investors were net buyers of Japanese stocks last
week for the second straight period after three weeks of net
selling. They bought a net 275.6 billion yen of shares in the
week through Nov. 24, data from the Ministry of Finance showed.
    The benchmark Nikkei has rallied 8.2 percent over the past
two weeks, taking the month-to-date gain to 4.9 percent, on
track for its best monthly performance since June.
    The Nikkei is up 10.8 percent so far this year, trailing a
12.1 percent rise in the U.S. S&P 500 and an 11.7 percent
gain in the pan-European STOXX Europe 600.
    Still, Japanese equities are more expensive than their
European counterparts, with a 12-month forward price-to-earnings
of 12 versus STOXX Europe 600's 11, according to Thomson Reuters
Datastream. The S&P 500 has a 12-month forward P/E of 12.5.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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