Nikkei drops on profit taking to await outcome of BOJ meeting

Mon Jan 21, 2013 1:53am EST

* Nikkei falls in line with firming yen
    * Jump in the yen drags down exporters
    * Financials weak due to large share holdings
    * Sharp drops, source says iPad panel production slashed

    By Ayai Tomisawa
    TOKYO, Jan 21 (Reuters) - The Nikkei share average fell on
Monday as investors pocketed profits as a precaution ahead of
the outcome of the Bank of Japan's two-day policy meeting, with
expectations for aggressive easing already mostly priced into
the market.
    The Nikkei fell 0.9 percent to 10,820.59 by the
midday break, moving further away from a 32-month high of
10,952.31 hit last Tuesday.
    Analysts said that investors have priced in news that the
central bank will set a 2 percent inflation target and approve
further asset buying, while a rise in the yen triggered profit
taking in exporters.
    Japan's government and central bank have agreed to set 2
percent inflation as a new target this week, when the Bank of
Japan will also consider making an open-ended commitment to buy
assets until the target is in sight, sources familiar with the
BOJ's thinking told Reuters. 
    "Investors seem to trust that the government is committed to
getting the country out of deflation... and they believe that
there will be further easing even after tomorrow," said Shun
Maruyama, chief strategist at BNP Paribas, who set the year end
Nikkei target at 15,000. "So even though they took profits from
the recent gains, they will likely buy on the dips sooner or
later."
    Maruyama also said that investors did not want to take large
positions on Monday as the U.S. markets are closed for the
Martin Luther King Jr. holiday.
    
    RISE IN YEN PULLS DOWN EXPORTERS
    Exporters such as automakers have seen their share prices
shoot up over the past two months, driving the Nikkei's rally,
as a weaker yen promises higher overseas revenue when
repatriated, making them more competitive against foreign firms.
    Toyota Motor Corp's share price, for example, has
risen 39 percent in the two months. Eiji Kinouchi, chief
technical analyst at Daiwa Securities, recommends buying
automaker shares on the dip if the market falls after the BOJ
meeting, as well as those of banks and real estate. 
    On Monday, the yen rose to 89.70 yen to the dollar, 0.5
percent above its late U.S. levels last week, dragging down such
exporters as Toshiba Corp, Nissan Motor Co and
Nikon Corp which dropped between 1.1-1.5 percent.
    The Nikkei has added 24 percent since mid-November when
then-incoming leader Shinzo Abe began calling for further 
policy easing, causing the yen to weaken.
    Traders said that retreat on Monday was unsurprising
following such a steep rise.
    The broader Topix dropped 0.7 percent to 905.16 with
3.3 billion shares changing hands, slightly down from last
week's average daily volume of 3.73 billion shares.
    
    FINANCIALS WEAK
    Traders said that such high beta shares in the insurance and
financial and financial sectors were also vulnerable to
profit-taking in a weak market. The insurance sector 
dropped 2.2 percent, the biggest sectoral loser on Monday.
    T&D Holdings Inc shed 1.7 percent, while Dai-ichi
Life Insurance Co slid 3.0 percent.
    Bank shares were also weak, with Mitsubishi UFJ Financial
Group dropped 2.3 percent and Mizuho Financial Group
fell 1.7 percent. 
    Meanwhile, Sharp Corp dropped 3.8 percent after two
sources told Reuters that the company has nearly halted
production of 9.7-inch screens for Apple Inc's iPad, 
possibly as demand shifts to its smaller iPad mini.