Nikkei pulls back from nearly 5-year highs, ahead of BOJ

Thu Apr 25, 2013 10:57pm EDT

* BOJ expected to stand pat at its policy meeting
    * Advantest, M3 take a beating after disappointing earnings
    * Sony rises after lifting 2012/13 earnings forecast

    By Dominic Lau
    TOKYO, April 26 (Reuters) - Japan's Nikkei share average
retreated from a near five-year high, ahead of the outcome of
the Bank of Japan meeting, hurt by disappointing earnings from
companies like Advantest Corp and M3 Inc. 
    By the midday break, the Nikkei fell 0.4 percent to
13,867.23 after trading as high as 13,983.87 earlier in the
session, hitting its highest level since June 2008 and within
sight of the 14,000-mark.
    "Volume is not light but people are waiting for the outcome
of the BOJ meeting today. The key focus is how much the BOJ has
spent over the course of the last month with regards to its
actual target," a senior dealer at a foreign brokerage said.
    The Bank of Japan is likely to hold off on offering any new
policy initiatives at its meeting later Friday after it stunned
financial markets on April 4 with a radical monetary expansion
program. The central bank promised to buy 7.5 trillion yen
($75.4 billion) of Japanese government bonds a month to lower
long-term interest rates and pull the world's third-largest
economy out of doldrums. 
    The benchmark Nikkei has surged 60 percent since
mid-November, when Shinzo Abe, who became prime minister in
December, promised bold expansionary monetary and fiscal
policies to revive the economy. During the same period, the yen
has weakened nearly 23 percent against the dollar.
    Investors were locking in profits on shares of real estate
financial companies after their recent sharp rally as they were
seen as benefiting the most from Japan's reflationary push. The
real estate sector dropped 1.4 percent and securities
companies lost 1.3 percent.  
    "The market obviously doesn't like earnings disappointment.
Things like M3 and Advantest are getting a little bit of a
beating," the senior dealer said.
    Tech concern Advantest sank 8.8 percent and was the
top-weighted loser in the Nikkei, while medical equipment maker
M3 dropped 5.3 percent after both companies reported
disappointing  fourth quarter results.
    Although it is still early in the quarterly reporting
season, only two out of the 16 Nikkei companies that have
reported so far beat market expectations, data from Thomson
Reuters StarMine showed.
    Construction machinery maker Komatsu Ltd gained 2.2
percent after its operating profit forecast for this financial
year ending March 2014 beat market consensus, even though last
year's profit failed to meet its twice revised-down estimate.
    Sony Corp rose 0.6 percent after it raised its
operating profit estimate for the year ended March by
three-quarters after it counted gains from the sale of its New
York headquarters and other asset sales and revalued a stock
holding, helping the TV maker cover losses in its consumer
electronics business. It was the most traded
stock on the main board by turnover.
    The broader Topix index fell 0.7 percent to
1,164.34, with volume at 54 percent of its full daily average
for the past 90 trading days.
        
    EARNINGS GUIDANCE THE KEY
    Canon Inc lost 0.8 percent, extending the previous
session's 6.4 percent decline after its annual earnings guidance
missed analysts' forecast when it announced its first quarter
results after the bell on Wednesday. 
    "New financial year profit guidance has a greater impact on
share prices than results surprises. Japanese companies
typically issue conservative guidance at the start of the fiscal
year," Goldman Sachs strategists wrote in a note.
    "Given the recent sharp forex move, companies in
export-related sectors may set conservative rate assumptions
relative to current spot rates, and if this is the case guidance
could fall well short of market expectations and be perceived as
a headwind."       
    But Citigroup said investors should not be fazed by
conservative earnings forecasts for this financial year ending
March 2014.
    "We expect corporate earnings forecasts to be fairly
conservative. However, we expect them to be revised up, as well
as market consensus forecasts, as we get further into FY3/14, on
the pick-up in the economy and previous yen weakening against
the dollar," it said in a report, adding that it expected the 
Topix to reach 1,320 by end-March 2014.
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