Nikkei hits 8-1/2-month on LDP win, U.S. fiscal hopes

Mon Dec 17, 2012 10:14pm EST

* Nikkei rises 1.1 pct, Topix up 1.2 pct in active trade
    * Exporters still benefit from LDP victory
    * Investors take profit on utilities after Monday's rally

    By Dominic Lau
    TOKYO, Dec 18 (Reuters) - Japan's Nikkei average edged
closer to the 10,000-mark, hitting an 8-1/2-month high for a
second day on Tuesday, buoyed by a landslide election win for
the conservative Liberal Democratic Party, although investors
took profit on power companies.
    Expectations that Washington will be able to resolve the
'fiscal cliff' -- a combination of spending cuts and tax
increases taking effect in the new year -- also added to the
positive mood in the market.
    The Nikkei rose 1.1 percent to 9,937.44 by the
midday break, taking the index deeper into "overbought"
territory, with its 14-day relative strength index at 81, well
above 70 which is deemed overbought and often indicates a
possible near-term correction.
    The benchmark Nikkei also broke above the upper band of the
Bollinger Bands, a short-term momentum indicator, also
signalling a possible pull back in the short-term. 
    "At this stage, we've seen some profit-taking in utilities
after a huge move they made yesterday. The yen-sensitive,
LDP-trade is still in full effect, with volume remaining very
good considering the quiet period of the year," a senior dealer
at a foreign brokerage said.
    "We wouldn't be surprised to see profit-taking a little bit
more than we are currently seeing."
    The benchmark Nikkei has risen 14.7 percent over the past
five weeks, driven by yen weakness after Shinzo Abe, who was
elected as the new prime minister on Sunday, called for the
central bank to embark on "unlimited easing" and set an
inflation target of 2 percent. The index is up 17.5 percent this
year. 
    Exporters and real estate firms, which benefit from a weaker
yen and Abe's call for reflationary policy, extended gains on
Tuesday.
    Among the exporters, Toyota Motor Corp, Honda Motor
Co, Canon Inc and Hitachi Ltd were up
between 1.9 and 2.2 percent, while the real estate sector
 added 1.3 percent.
    BNP Paribas said it expected the Nikkei to reach 11,000 in
the first half of next year, 10.7 percent above where it ended
Tuesday's morning session.
    Its top picks under a weak yen scenario included Toyota,
construction machinery maker Komatsu Ltd, steelmaker
JFE Holdings, Canon, lender Sumitomo Mitsui Financial
Group and game company Nintendo Co Ltd.
    
    REAL TEST IN H2 2013
    But BNP Paribas said the real test for the new government
would be in the second half of 2013.
    "Compiling the budget and replacing BOJ executives is one
thing, but the question remains whether only economic stimulus
measures and monetary easing will pull the Japanese economy out
of deflation," it wrote in a note.
    "Concerns about deteriorating government finances may
finally bring an upswing in long-term rates in the bond market
and Japan could face the triple whammy of a falling currency,
falling government bond prices, and falling share prices."     
    The broader Topix index gained 1.2 percent to 817.42
in active trade after Tuesday's morning session, with volume at
11 percent above its full daily average for the past 90 trading
days.
    Power utilities fell after rallying on Monday following the
LDP victory as the party is opposed to nuclear-free policy.
    Kansai Electric Power Co lost 5.1 percent and Chubu
Electric Power Co dropped 2.9 percent, but Tokyo
Electric Power Co, which were battered by a meltdown in
its Fukushima nuclear power plant after last year's earthquake,
surged 13.4 percent.
    Shionogi & Co Ltd advanced 3 percent after the
drugmaker said its joint venture with GlaxoSmithKline 
and Pfizer has applied to health regulators in the
United States, Canada and Europe for approval of its HIV drug
Dolutegravir.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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