Weak yen propels Nikkei to 7-mth closing high; in overbought territory

Thu Dec 6, 2012 1:52am EST

* Nikkei rises 0.8 pct, Topix up 0.9 pct
    * Nikkei enters "overbought" territory
    * Exporters lead gainers on softer yen
    * LDP looks set to win a majority on Dec. 16 election
    * Sharp up, Hon Hai reportedly still in talks

    By Ayai Tomisawa
    TOKYO, Dec 6 (Reuters) - The Nikkei share average climbed to
a seven-month closing high above the 9,500 mark on Thursday,
encouraged by a yen kept weaker through persistent speculation
that the central bank would adopt bolder action to pull Japan
out of deflation under a likely new government.
    The Nikkei rose 0.8 percent to 9,545.16 points, the
highest closing level since April 26.
    But Thursday's rally took the index to "overbought"
territory, with its 14-day relative strength index at 70.4.
Seventy or above is deemed overbought, which often signals a
possible pull back in the near-term, analysts said.
    "When the market falls, it attracts buying soon, but when it
starts rising again, investors take profits. Unless there are
more clear developments which would convince foreigners that the
BOJ will take action for monetary policy, it will be difficult
to see stable gains," said Shun Maruyama, chief strategist at
BNP Paribas, adding that foreigners were unlikely to take big
positions before they go on Christmas holidays.
    Japan's conservative Liberal Democratic Party (LDP) looks on
course to win a surprisingly solid majority in a Dec. 16
parliamentary election, media polls showed on Thursday,
returning to power with a hawkish former premier at the helm. 
    Former Prime Minister Shinzo Abe, who heads the LDP and
would likely return to the top job if the party wins, is calling
for radical monetary easing by the Bank of Japan (BOJ) to beat
persistent deflation and a strong yen. 
    His comments have weakened the yen over the past three
weeks, while the Nikkei has rallied 10.2 percent, led by
exporters.
    But analysts said the path to softer monetary policy does
not seem smooth.
    "Even if the LDP wins a majority in the lower house, it will
not have one in the upper chamber, so it will be difficult to
pass legislation," said Hiroyuki Fukunaga, the chief executive
of Investrust.
    "For example, the LDP supports public works, which lifted
construction sector when Abe called for more public works, but
the DPJ is against it. Investors take a cool stance on Japan's
political developments now."
    But other market observers said that the mood remained
positive on the back of the weak yen, and if trading volumes
also pick up the Nikkei may rise further towards next year on a
combination of both domestic and overseas factors such as a
resolution of U.S. budget problems. 
    "We expect the avoidance of the fiscal cliff in the U.S.,
improvement in the revision index accompanying yen weakness and
a bottoming in the domestic economy to drive gains in Japanese
equities through spring 2013," Citigroup wrote in a research
note, adding that it expects the Nikkei to reach 9,900 and the
Topix to hit 820 then.
    The broader Topix advanced 0.9 percent to 788.74, in
fairly high volume, with 2.0 billion shares changing hands in
versus 1.84 billion for Wednesday and last week's daily average
of 2.01 billion.
    Foreign investors were net buyers of Japanese equities last
week for the third straight week. They bought a net 184.3
billion yen ($2.2 billion) of shares in the week through Dec. 1,
down from 275.8 billion yen in the previous week, finance
ministry data showed.

    EXPORTERS ASCEND
    Exporters in demand included Toyota Motor Corp,
camera and printer maker Canon Inc, air conditioner
maker Daikin Industries Ltd and Honda Motor Co
, up between 1.0 and 3.1 percent.
    The yen was quoted at 82.40 to the dollar after falling 0.7
percent to 82.46 yen on Wednesday. It touched a 7-1/2-month low
of 82.84 yen to the dollar on Nov. 22.
    Sharp Corp surged 9.9 percent to a 2-1/2 month high
after a Taiwan newspaper quoted the chairman of Hon Hai
Precision Industry as saying that Qualcomm's 
tie-up with the struggling TV maker will not affect Hon Hai's
talks with Sharp to become its biggest shareholder.
 
    Hon Hai's chairman reiterated that he expects to reach a
decision with Sharp before March 2013, the newspaper reported.
    Adding to the positive mood, sentiment among Japanese
manufacturers edged up for the first time since July, a Reuters
poll showed, in a sign that the economy may have bottomed out
even as sluggish global demand continues to weigh on business
confidence.    
    The benchmark Nikkei is up 12.9 percent this year, in line
with a 12.1 percent rise in the U.S. S&P 500 and a 13.2
percent gain in the pan-European STOXX Europe 600.
    But Japanese equities are more expensive than their European
peers, with a 12-month forward price-to-earnings ratio of 12.1
versus STOXX Europe 600's 11.1, data from Thomson Reuters
Datastream showed. The S&P 500 has a 12-month forward P/E of
12.5.