Nikkei slips 1 pct but holds above 10,000; BOJ in focus

Wed Dec 19, 2012 9:55pm EST

* Nikkei sheds 1 pct, Topix down 0.3 pct
    * Mitsubishi Motors sinks after recall, sector also down
    * BOJ seen boosting stimulus again

    By Dominic Lau
    TOKYO, Dec 20 (Reuters) - Japan's Nikkei average fell 1
percent on Thursday morning, ahead of the results of a closely
watched Bank of Japan meeting, after a sharp rally the previous
day that saw the index close above 10,000 for the first time
since early April.
    The Nikkei lost 104.91 points to 10,055.49 by the
midday break after surging 2.4 percent on Wednesday to
10,160.40, logging its biggest one-day percentage rise since
September 2011.
    Automakers were among the worst sectoral performers amid a
6.6 percent slump in Mitsubishi Motors Corp, after the
company said it would recall about 1.2 million minicar vehicles
in Japan due to faulty engine oil seals. 
    Honda Motor Co lost 2.4 percent. Nissan Motor Co
 sank 6.8 percent, also hurt by a rating cut by Nomura,
which said there was a risk of deterioration in short-term
earnings.
    "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. 
    
    
    ABE RALLY
    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.
    Foreign investors were net buyers of Japanese equities last
week for a fifth straight week. They bought a net 389.6 billion
yen ($4.6 billion) of shares in the week through Dec. 15, after
purchasing a net 116.8 billion in the previous week, data from
Japan's finance ministry showed.
    The Nikkei has rallied 16 percent over the past five weeks,
taking its year-to-date gain to 18.9 percent, ahead of 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 cheaper than their U.S. peers,
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.
    Credit Suisse said homebuilders, REITs, life insurers and
banks were the best ways to play the reflation trade.
    "A period of reflation should prove positive for these
sectors. We would note though that given the large government
bond holdings of the Japanese banking system, a significant
sell-off in JGBs would be a more serious issue," Credit Suisse
strategists said in a note, referring to the possible rise in
Japanese government bond yields under a reflationary scenario.
    The broader Topix was down 0.3 percent at 836.57 in
active trade after the morning session, with volume near its
full daily average for the past 90 trading days.
        
    STILL OVERBOUGHT
    Despite Thursday's fall, the Nikkei was still deep in
"overbought" territory, with its 14-day relative strength index
at 76.8, 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 1.5 and 3 percent.
    Sharp Corp eased 2 percent but was still up 75
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.
    Short-selling interest in Sharp has eased, although it
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, according to data provider Markit.
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