Nikkei falls 1 pct after sharp rally, ahead of BOJ

Wed Dec 19, 2012 8:08pm EST

By Dominic Lau
    TOKYO, Dec 20 (Reuters) - Japan's Nikkei average fell 1
percent on Thursday, ahead of the Bank of Japan's policy
meeting, after a sharp rally in the previous session that took
the index to end above 10,000 for the first time since early
April.
    The Nikkei lost 98.06 points to 10,062.34 in
mid-morning after surging 2.4 percent to 10,160.40, logging its
biggest one-day percentage rise since September 2011, on
Wednesday.
    Automakers were among the worst sectoral performers after a
7.7 percent slump in Mitsubishi Motors Corp after it
said it would recall about 1.2 million minicar vehicles in Japan
due to faulty engine oil seals. 
    Honda Motor Co dropped 2.1 percent and Nissan Motor
Co shed 5.2 percent.
    "We are seeing profit-taking. The automobile stocks are
being hit by Mitsubishi Motors recall. The main thing that's
driving the market at the moment is just a little bit of
judicious concern ahead of the Bank of Japan meeting," a senior
dealer at a foreign brokerage said.
    "There is a bit of consensus that if the Bank of Japan
doesn't do anything today there will be a sell-off. I disagree
with that. But as we come close to the end of the year, for a
lot of market participants, tomorrow is the last day, so you are
going to close out your books."
    The Bank of Japan is expected to deliver its third dose of
monetary stimulus in four months in a prelude to more aggressive
action next year, as it faces intensifying pressure from the
country's incoming leader for stronger efforts to beat
deflation. 
    Shinzo Abe, whose opposition Liberal Democratic Party won
Sunday's election by a landslide, has called for the BOJ to
adopt bolder policy action, including embarking on "unlimited
easing" and setting an inflation target of 2 percent. His
comments have softened the yen, which boosts the appeal of
exporters' shares.
    The Nikkei has rallied 16.1 percent over the past five
weeks, taking the year-to-date gain for the Nikkei to 19
percent, outperforming a 14.2 percent rise in the U.S. S&P 500
 and a 15.2 percent gain in the pan-European STOXX Europe
600.
    Still, Japanese equities are much cheaper than their U.S.
counterparts, with a 12-month forward price-to-earnings ratio of
12.1 versus S&P 500's 12.7, data from Thomson Reuters Datastream
showed. The STOXX Europe 600 carries a 12-month forward P/E of
11.4.    
    
    STILL OVERBOUGHT
    Despite Thursday's fall, the Nikkei was still deep in
"overbought" territory, with its 14-day relative strength index
at 77, way above 70 which is deemed overbought and signalling
that a correction may be imminent.
    Other exporters also succumbed to profit-taking, including
Canon Inc, Ricoh Ltd and industrial robot
maker Fanuc Corp, down between 1.6 and 2.7 percent.
    Sharp Corp was down 2.6 percent but it was still up
74 percent this month on short-covering as the broader market
rallied and after its announcement in early December that U.S.
chipmaker Qualcomm Inc would invest $120 million in the
struggling TV maker. It was the most-traded stock on the main
board by turnover.
    Short-selling interest in Sharp has eased, although it still
remains high, with 90.49 percent of its stock that is available
to be borrowed out on loan as of Dec. 18, down from 93.46
percent on Nov. 30.
    The broader Topix slipped 0.5 percent to 835.13. 
    Insurers dropped 2.3 percent after jumping 6.4
percent in the previous session.