Nikkei rises as weak yen offsets uncertainty over U.S. budget talks

Thu Nov 29, 2012 9:07pm EST

* Nikkei up 0.7 percent, Topix up 0.6 percent
    * Foreign hedge funds are buyers - analyst
    * Investors are short on yen, long on Nikkei - analyst

    By Ayai Tomisawa
    TOKYO, Nov 30 (Reuters) - Japan's Nikkei share average rose
on Friday as a weak yen offset uncertainty over U.S. budget
talks, boosting risk appetite and encouraging investors to chase
exporters on hopes of stronger-than-expected earnings.
    The Nikkei advanced 0.7 percent to 9,464.43, trading
comfortably above its 5-day moving average at 9,396.75 after
moving back and forth between positive and negative territories
in early trade.
    Analysts said that sentiment remains positive for earnings
for bellwether exporters as the dollar holds above 82 yen, but
volume may be subdued due to the fast-paced rise in the market
and uncertainty surrounding U.S. budget talks.
    A day after expressing optimism over a U.S. "fiscal cliff"
deal, senior Republican John Boehner said there had been no
"substantive" progress made in the last two weeks, denting hopes
for a deal to prevent the U.S. economy from slipping into a
possible recession next year.
    "The market is subject to mood swings by investors who pay
close attention to small developments in U.S. budget talks, but
as long as the yen does not rise far from the current levels, we
may see a slow but steady rise in the market," said Takuya
Takahashi, an analyst at Daiwa Securities.
    The market was also closely watching comments by Shinzo Abe,
leader of the main opposition party Liberal Democratic Party
(LDP), he said. The yen has been under pressure on expectations
the LDP will win a Dec. 16 election and increase pressure on the
central bank to adopt a bolder monetary policy.
    Calls by 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 and buoyed
exporters.
    Exporters rose, with Canon Inc adding 1.1 percent
and Nissan Motor Co gaining 0.5 percent.
    
    DOMESTIC INVESTORS TURN SELLERS
    Market observers said foreign investors remain positive on
bellwether exporters while the dollar holds above 82 yen, but
domestic investors are starting to take profits as many are
skeptical the central bank will give in easily to Abe's demands.
Domestic investors could turn into sellers when the Nikkei nears
the 9,500-mark, they said.
    The benchmark Nikkei has rallied 9.2 percent over the past
two weeks, taking the month-to-date gain to 5.9 percent, on
track for its best monthly performance since June.
    "Their positions are like this ... short on the yen and long
on the Nikkei. Buying (in the equities market) is mainly by
foreign hedge funds such as commodity trading advisors who are
chasing the Nikkei 225 futures higher," said Norihiro Fujito, a
senior investment strategist at Mitsubishi UFJ Securities.
"Domestic players are becoming sellers because they take a cold
look at their political climate."
    Notable gainers included Hitachi Ltd and Mitsubishi
Heavy Industries Ltd, which rose 3.7 percent and 2.2
percent respectively after the two companies said they would
combine their thermal power businesses to better compete against
bigger overseas rivals General Electric Co and Siemens AG
. 
    The broader Topix gained 0.6 percent to 784.44.