Japan's Nikkei retreats on soft U.S. manufacturing data

Tue Dec 4, 2012 1:33am EST

* Nikkei falls 0.3 pct, Topix ends flat
    * Sharp gains on report of tie-up with U.S. Qualcomm

    By Dominic Lau
    TOKYO, Dec 4 (Reuters) - Japan's Nikkei average dipped on
Tuesday, retreating from a seven-month closing high hit in the
previous session, as weak U.S. manufacturing data triggered
profit-taking on exporters, which have lately enjoyed a sharp
bounce on a softer yen.
    Calls by Shinzo Abe, leader of the main opposition party
Liberal Democratic Party (LDP), for the Bank of Japan to embark
on "unlimited easing" and set inflation target at 2 percent have
weakened the yen over the past three weeks.
    During that period the Nikkei has risen 8.9 percent, taking
its year-to-date gain to 11.6 percent, narrowing the gap with
the U.S. S&P 500's 12.1 percent rise this year and the
pan-European STOXX Europe 600's 12.9 percent gain.  
    But a surprising drop in U.S. manufacturing activity in
November, which hit its lowest level in more than three years,
prompted investors to lock in some of the recent gains.
    The ended 0.3 percent lower at 9,432.46 points, as
gains in defensive stocks, whose business performance is less
impacted by the health of the global economy, helped limit
losses. 
    Despite the pull back, many analysts remained upbeat on
Japanese equities, which carry a 12-month forward
price-to-earnings ratio of 12, slightly below S&P 500's 12.5 but
above STOXX Europe 600's 11, according to Thomson Reuters
Datastream.
    "I am looking for the market to continue to rally after the
election, subject to the LDP getting the most seats in the
election," said Hidehiro Tomioka, head of equity investment at
Manulife Asset Management in Tokyo.
    "The pressure on the BOJ will continue after the election."
    According to Reuters data, the most traded December Nikkei
index options were a call with a strike price of 9,750
, 3.4 percent above Tuesday's close, followed by
another call at 10,000 and a put at 9,250
.
    The broader Topix index was flat at 781.97 in
relatively light trade, with 1.74 billion shares changing hands,
down from Monday's 1.87 billion and last week's average of 2.01
billion. 
    The yen was quoted at 82.11 to the dollar on Tuesday, up
from its 7-1/2-month low of 82.84 touched on Nov. 22.
    
                 
    'DON'T FIGHT THE YEN'
    Morgan Stanley MUFG said it expected the Topix to reach 910
by the end of 2013, 16.4 percent above where it closed on
Tuesday.
    "Don't fight the yen in 2013. With domestic political
catalysts underway with lower/upper house elections and change
in the BOJ governor, our FX team thinks the yen can weaken to as
much as 92 yen to the dollar by 1Q 2014," Morgan Stanley MUFG
analysts wrote in a report.
    Among exporters headed lower on Tuesday were Canon Inc
, Nikon Corp, Nissan Motor Co and TDK
Corp, down between 0.9 and 3.7 percent.
    Sharp Corp, however, gained 1.2 percent after two
sources familiar with the matter said it and U.S. chipmaker
Qualcomm Inc have agreed to jointly develop
next-generation displays.
    Mobile operator Softbank Corp advanced 0.5 percent,
while the food sector added 0.6 percent.
    HSBC raised its weighting on Japanese equities in its global
portfolio model to 'neutral', although it remained pessimistic
on Japan's long-term outlook, citing valuations and many
Japanese companies losing international competitiveness.
    "The chances are increasing that the Bank of Japan, which
over the past few years have been reluctant to undertake
aggressive QE, might change its stance," it said.
    "All the major political parties have declared they will
push the BOJ to ramp up its unorthodox monetary easing measures.
It is not a foregone conclusions that this will happen -- the
BOJ is likely to fight back -- but investors would be wise not
to take a strong positions against it."
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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