Japan's Nikkei rises on hopes for a deal tackling U.S. fiscal woes

Thu Nov 29, 2012 1:44am EST

* Carmakers may see long rally - trader
    * U.S. optimism about fiscal deal lifts sentiment
    * Nikkei, Topix both rise 1.0 pct

    By Ayai Tomisawa
    TOKYO, Nov 29 (Reuters) - Japan's Nikkei share average
rebounded from the previous session's one-week closing low as
hints from U.S. policymakers of progress toward reaching a
fiscal deal boosted investors' risk appetites.
    The Nikkei advanced 1.0 percent on Thursday to
9,400.88 points, climbing above its five-day moving average at
9,377.65.
    U.S. House of Representatives Speaker John Boehner voiced
optimism on Wednesday that a deal could be reached to avoid a
"fiscal cliff" of $600 billion in spending cuts and tax hikes
starting in 2013. 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 after a bout of
profit-taking following a recent rally spurred by a weaker yen.
The yen has been under pressure on expectations the opposition
Liberal Democratic 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 LDP leader Shinzo Abe 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.
    Analysts said that optimism over the weak yen may keep the
index around the 9,400 mark until the December election, but a
correction may be seen when it nears the psychologically
important 9,500 level. 
    
    
    CARMAKERS MAY STAY BEST PICK
    Exporters in demand on Thursday included Toyota Motor Corp
, Honda Motor Co, Canon Inc and
Hitachi Ltd, which rose between 1.1 and 2.9 percent.
    JFE Holdings climbed 3.5 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.
    Traders said although there may be profit-taking following
steep rises in exporters, companies such as Toyota and Honda may
rally until around March.
    "I started adding those carmakers to my portfolio in October
after most exporters' earnings were out," said Yasuo Sakuma,
chief executive of Bayview Asset Management.
    He said that while many Japanese manufacturers' earnings
disappointed the market with cuts to their full-year outlooks, 
the bad news created a good time to buy.
    "I will keep buying companies like Toyota which have a
competitive edge in the global market, but such rally's
psychological 'expiration date' may come in about five months,"
Sakuma said.
    The broader Topix gained 1.0 percent to 779.44.
        
    GOLDMAN SACHS UPBEAT
    Goldman Sachs raised its 12-month Topix target by 8.1
percent to 930 from 860. The new target was nearly 20 percent
above where the index ended Thursday's 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," they said.
    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 8.5 percent over the past
two weeks, taking the month-to-date gain to 5.3 percent, on
track for its best monthly performance since June.
    The Nikkei is up 11.2 percent so far this year, on par with
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.
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