Nikkei sags 1.7 pct on U.S. growth fears as markets await BOJ decision

Wed Apr 3, 2013 11:13pm EDT

* BOJ expects to unveil bold monetary easing steps
    * Weak U.S. data prompts investors to take profit
    * Heavyweight Fast Retailing falls, giving up part of
Wednesday's jump

    By Tomo Uetake
    TOKYO, April 4 (Reuters) - Japan's Nikkei average dropped
1.7 percent at Thursday's midday break, with concerns over the
U.S. recovery hurting sentiment as markets awaited the outcome
of a crucial Bank of Japan policy meeting. 
    The Nikkei shed 213.03 points to 12,149.17, after
rebounding 3 percent on Wednesday from steep losses earlier in
the week. Thursday's drop took the index back below its 25-day
moving average of 12,203.59.
    The main focus for the local market was centred on the
outcome of the BOJ's two-day meeting, the first under its new
leadership, which comes later on Thursday. 
    "Market players are waiting for the BOJ decision and want to
see how serious and eager Governor (Haruhiko) Kuroda is about
combating deflation," said Mitsushige Akino, executive director
and chief fund manager at Ichiyoshi Asset Management.
    The central bank is expected to embark on a bold experiment
by pulling out all the stops to beat deflation, starting with
ramping up its bond buying and extending the maturities of that
debt. 
    Still, given that the market has built up high expectations
for aggressive easing steps, some traders warned of possible
disappointment.
    "This time is QE1, just focusing on the JGB market," he
said," said Shun Maruyama, chief Japan equity strategist at BNP
Paribas.
    Maruyama was of the view that the BOJ was unlikely to raise
the size of its purchase of risky assets, such as
exchange-traded funds and real estate investment trust, at this
meeting.
    "I believe the Nikkei will correct to 11,000, so another 10
percent decline is highly likely," he said.
    Weak data from the United Stated provided an early bearish
lead for the Nikkei, with exporters coming under pressure.
    Toyota Motor Corp, Mazda Motor Corp, Canon
Inc and construction machinery maker Komatsu Ltd
 were down between 1.3 and 4.7 percent.
    U.S. private employers added 158,000 jobs last month, its
weakest pace in five months, while growth in the vast service
sector slowed, raising concerns that the economic recovery could
be hitting a soft patch. 
    
    FAST RETAILING SLIPS
    Losses in index heavyweight Fast Retailing also
weighed on the market. The operator of Uniqlo casual fashion
chain sank 4.6 percent, giving up some of the previous session's
near 14 percent jump after Uniqlo posted a 23.1 percent surge in
Japan same-store sales in March.
    Investors took profit on real estate and financial shares,
which have been rallying in the past few months on expectations
that they will benefit from the reflationary drive.
    The real estate sector eased 1.2 percent but is
still up 65 percent since mid-November, outpacing a 40 percent
rise in the benchmark Nikkei during the same period, when Prime
Minister Shinzo Abe unveiled proposals during his election bid
for bold fiscal expansionary and monetary easing policies.
    In terms of valuations, real estate companies are getting
expensive, with their 12-month forward price-to-book ratio
climbing to 2.2. That compares with Japanese equities' 1.15 and
the real estate sector's 10-year average of 1.83, according to
Thomson Reuters Datastream. 
    Banks, on the other hand, offer a much cheaper valuation.
They carry a 12-month forward P/B of 0.8, even though their
share prices have risen 51 percent since mid-November. 
    The broader Topix index lost 1.2 percent to 998.14
in subdued trade, with 1.49 billion shares changing hands at the
midday break. It is poised to post thin daily volume compared
with last month's average daily volume of 3.24 billion shares.
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