Nikkei falls but holds above 10,000, U.S. fiscal talks eyed

Thu Dec 20, 2012 2:12am EST

* BOJ aggressive easing priced
    * Profit-taking on exporters dents market
    * U.S. 'fiscal cliff' talks focus until end 2012

    By Ayai Tomisawa
    TOKYO, Dec 20 (Reuters) - Japan's Nikkei average dropped on
Thursday in active trade after the central bank's third dose of
monetary stimulus disappointed the market and triggered
profit-taking, although the index managed to end above 10,000.
    The Nikkei shed 1.2 percent to 10,039.33, after
surging 2.4 percent on the previous day to 10,160.40, logging
its biggest one-day percentage rise since September 2011.
    Selling came after the Bank of Japan (BOJ) eased monetary
policy on Thursday afternoon by expanding its asset-buying and
lending programme.
    It was a widely expected move in response to intensifying
pressure from incoming Prime Minister Shinzo Abe for the BOJ to
deliver bolder steps to beat deflation. 
    The central bank topped up its asset-buying and lending
programme by 10 trillion yen to 101 trillion yen by a unanimous
vote, expanding stimulus for the third time in four months.
    "Some investors were disappointed with the BOJ's
asset-buying amount. It expanded the programme by 10 trillion
yen for both short-term and longer-term bonds, but investors
were expecting as much as 10 trillion yen on just buying
longer-term bonds," said Norihiro Fujito, senior investment
strategist at Mitsubishi UFJ Morgan Stanley Securities. 
    The BOJ's shares jumped 10.7 percent on Thursday,
extending a 33 percent rally over the past three sessions.
    The bank also signalled a review of its current 1 percent
inflation target at its next policy-setting meeting in January,
when Abe will have a new cabinet in place ready to negotiate
with the central bank.
    "Abe has been demanding an inflation target of 2 percent,
but the bank postponed the decision about this without
elaborating," Fujito said.
    Automakers were among the worst sectoral performers amid a
5.5 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 1.8 percent. Nissan Motor Co
 sank 7.4 percent, also hurt by a rating cut by Nomura,
which said there was a risk of deterioration in short-term
earnings.
    
    FOCUS SHIFTS TO OVERSEAS DEVELOPMENTS
    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.
    Analysts said there may be a correction in the market by the
end of the year without good news on U.S. "fiscal cliff" talks.
    "The market has started taking profits as hopes for
aggressive easing have been priced into the current market for
the rest of the year," said Fujio Ando, senior managing director
at Chibagin Asset Management.
    "If there is progress in talks on the U.S. 'fiscal cliff',
the market may rise further, but if not, the market may shed as
much as a third of what it has gained over the past month or
so."
    The Nikkei has rallied 15.9 percent over the past five
weeks, taking its year-to-date gain to 18.7 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.
    U.S. President Barack Obama and congressional Republicans
are struggling to come up with a deal to avoid a fiscal cliff of
 $600 billion in tax hikes and spending cuts, scheduled to start
in January, which many economists say could send the U.S.
economy into recession. 
    The broader Topix was down 0.1 percent at 838.61 in
active trade, with 3.74 billion shares changing hands on the
board, compared with last week's daily average of 2.29 billion
shares.
    Despite Thursday's fall, the Nikkei was still deep in
"overbought" territory, with its 14-day relative strength index
at 75.67, 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 2.1 and 3.6 percent.
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