Nikkei edges down on profit-taking, tankan sours mood
* Index may hover at futures and options settlement price * BOJ tankan sours mood - trader * Charts indicate market is 'overbought' - analysts * Some correction may be seen after election - trader By Ayai Tomisawa TOKYO, Dec 14 (Reuters) - Japan's Nikkei share average edged down on Friday as investors adjusted their positions before Sunday's election amid chart signals that the market is 'overbought', while poor corporate sentiment soured the mood. The Nikkei shed 0.4 percent to 9,707.41 after closing at the highest level since April 5 on Thursday. Market players said the Nikkei was likely to hover around 9,720.36 for the day, the settlement price of Nikkei futures and options contracts expiring in December. The closely watched settlement price, known in Japan as the special quotation, or "SQ", is calculated from the opening prices of the 225 shares in the Nikkei average on the second Friday of the month. Exporters, which were big gainers in the previous day, dropped on profit-taking, with Honda Motor Co shedding 0.9 percent to 2,800 yen, Canon Inc falling 0.5 percent to 3,125 yen and Panasonic Corp sliding 1.9 percent to 472 yen. Hiroichi Nishi, general manager at SMBC Nikko Securities, said that some investors unwound their positions before Sunday's election as technical signs suggested the market is overheated. Thursday's advance took the benchmark's 14-day relative strength index to 71.48. Seventy or above is considered overbought. Also, the toraku ratio, or up-down ratio, used for the first section of the Tokyo Stock Exchange, was at 123. The ratio is calculated by dividing the 25-day moving average of stocks that gained by the 25-day average of those that fell. A level above 120 signals an overheated market. Traders said sentiment is still positive due a weaker yen, which boosts exporters' overseas earnings when repatriated. But uncertainties, such as the U.S. 'fiscal cliff' talks, could limit year-end gains. "After the election, we may see some correction as hopes for monetary easing will be priced in completely (if the Liberal Democratic Party wins a majority seat as expected)," said Naoki Fujiwara, a fund manager at Shinkin Asset Management. "The Nikkei may hit 9,800 but we still have concerns about the U.S. fiscal cliff and the health of the U.S. economy." Investors are worried that a combination of U.S. government spending cuts and tax rises due to begin in 2013 may tip the economy back into recession if a deal is not reached in Washington. The mood was also soured by poor Japanese business sentiment in a central bank tankan survey, which worsened for a second straight quarter in the three months to December. "The impact from the tankan survey is minimal on the market but it is not encouraging investors to chase the market higher for now," Fujiwara said. On Thursday the yen hit an 8-1/2-month low of 83.67 yen to the dollar as investors bet on bolder moves by the central bank after Sunday's election on Sunday. Shinzo Abe, the leader of the main opposition party which is expected to win the election, has called for the bank to adopt extreme policy action, including setting an inflation target of 2 percent and embarking on "unlimited easing". His comments have weakened the yen over the past month and helped boost stocks. The Nikkei has rallied 12.2 percent over the past month, taking its year-to-date gain to 14.9 percent, ahead of the performance of its peers in the United States and Europe. The U.S. S&P 500 has risen 12.9 percent so far this year and the pan-European STOXX Europe 600 has gained 14.3 percent. The broader Topix index was flat at 799.00.
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