Nikkei dips ahead of Sunday's election, still overbought

Fri Dec 14, 2012 1:58am EST

* Nikkei dips 0.1 pct, Topix adds 0.2 pct
    * Trading volume on Nikkei hits highest in 9 months
    * Yen reaches near 9-month low vs dollar, supports some
exporters

    By Dominic Lau
    TOKYO, Dec 14 (Reuters) - Japan's Nikkei average inched down
on Friday as investors were cautious ahead of this Sunday's
general election, with strong expectations that the main
opposition party, which favours aggressive easing, is set for
victory.
    The Nikkei ended 0.1 percent lower at 9,737.56, but
was still near its eight-month closing high hit on Thursday.
    The benchmark remained in "overbought" territory, with its
14-day relative strength index at 75.7, way above the 70-level
which defines as overbought and often indicates a possible pull
back in the near-term. 
    Trading volume on the Nikkei surged to a nine-month high,
with 2.47 billion shares changing hands partly due to settlement
of December futures and options in a closely watch major "SQ"
special quotation. 
    The Osaka Securities Exchange said after the close that
Nikkei futures were settled at 9,720.36.
    "What's expected to happen is that, come Monday, a lot of
foreigners are going to let their positions go, so they can go
skiing. People who know nothing will be saying this shows that
it was just a short-term move and we can now ignore Japan," said
Nicholas Smith, Japan strategist at CLSA.
    "I wouldn't say to long investors that they should trade
around what happens on Monday ... The medium- to long-term story
looks really good at the moment," Smith said, adding that he
expected the market to rise 15 to 20 percent next year.
    A Reuters poll of 17 analysts expected the Nikkei to rise to
11,000 by the end of 2013, 13 percent above where it closed on
Friday, as easy monetary policy weakens the yen and a resolution
of U.S. fiscal problems lifts sentiment. 
    "The key positives for Japanese equities are that they are
cheap, our of favour and have healthy balance sheets," said
Robert Farago, head of asset allocation at Schroders Private
Banking.
    "The outlook for growth remains muted but no more so than in
Europe or the UK, while earnings are forecast to grow this year
and next. The economy appears stuck in second gear at a time
when its near neighbours, notably china, are booming," he said.
"However, the market is priced as if the country were heading
backwards." 
    The Nikkei has surged 12.4 percent over the past month,
spurred by a weaker yen after Shinzo Abe, the leader of the main
opposition LDP, called for the Bank of Japan to adopt aggressive
policy action, including embarking on "unlimited easing".
    The yen fell to a near nine-month low of 83.96 yen to the
dollar on Friday. A softer yen boosts exporters' overseas
earnings when repatriated and increases their competitiveness,
particularly against South Korean and Chinese rivals.
    
    Some exporters succumbed to profit-taking, with Olympus Corp
, Hitachi Ltd and Nikon Corp down
between 0.5 and 2.4 percent. But Canon Inc and Sony
Corp rose between 0.3 and 2.3 percent.
    
    SHORT-COVERING 
    Sharp Corp climbed 7.6 percent to extend this
month's gain to 56.4 percent on short-covering after the
struggling TV maker said in early December that U.S. chipmaker
Qualcomm will invest $120 million in the Japanese firm. The
stock is still down 60 percent year-to-date, however.
    Short-selling interest in Sharp has fallen lately, although
it still remains high, with 92.05 percent of its stock that is
available to be borrowed out on loan as of Dec. 12, down from
92.92 percent on Dec. 7, according to data provider Markit. 
    The broader Topix index added 0.2 percent to 801.04.
    "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 sill have concerns about
the U.S. fiscal cliff and the health of the U.S. economy."
    Investors were wary that a combination of U.S. government
spending cuts and tax increases, due to take effect early next
year, could tip the world's largest economy into recession.
    The Nikkei is up 15.2 percent this year, ahead of a 12.9
percent gain in the U.S. S&P 500 and a 14.3 percent rise
in the pan-European STOXX Europe 600.
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