Nikkei falls on banks, weak capital spending - Olympus soars

Thu May 16, 2013 2:45am EDT

* Japan stocks even more sensitive to forex moves - Nomura
    * Market expects further rises in Japanese stocks
    * Banks drop on weak forecasts, poor capex data
    * Olympus bucks weakness on rosy forecast

    By Ayai Tomisawa
    TOKYO, May 16 (Reuters) - Japan's Nikkei stock average fell
on Thursday, reversing from a fresh 5-1/2-year high earlier in
the session, after banks offered downbeat earnings guidance and
investors took profits in the face of doubts prompted by the
breakneck speed of recent rises.
    The market was also dented by weak company capital spending
by over the March quarter. 
    Official figures published on Thursday morning showed
Japan's economy grew at a faster-than-expected 0.9 percent in
January-March from the previous quarter, but capital investment 
dropped 0.7 percent - inverting the market's expected 0.7
percent rise. 
    The benchmark Nikkei dropped 0.4 percent to
15,037.24 points, after rising as high as 15,155.72, a level
last visited in January 2008.
     "It's just a healthy correction after such steep rises in
Nikkei. The stocks had moved a little too fast," said Ryota
Sakagami, chief equity strategist at SMBC Nikko Securities.
    "But it's difficult to predict how long the correction phase
will last. There are very few investors who are pessimistic on
the Japanese stocks in the medium to long term."
    Bucking the trend, Olympus Corp soared 18 percent
and was the fifth biggest percentage gainer after the camera and
endoscope maker forecast a 274 percent rise in net profit at 30
billion yen ($293 million) for the current business year through
March. 
    Japan's top three banks, however, forecast weaker annual
earnings on Wednesday as aggressive monetary easing squeezes
them out of the profitable government bond trade.
 
    Mitsubishi UFJ Financial Group dropped 3.6 percent,
Mizuho Financial Group shed 3.1 percent and Sumitomo
Mitsui Financial Group fell 3.0 percent.
    Market observers said that the central bank's plan to
purchase 70 percent of Japanese government bonds, part of its
aggressive monetary easing, would be negative for banks'
profits.
    "If banks have strong lending businesses that can make up
for the damage on JGB trading gains, there should be no problem.
But company managements' risk-averse stance on capital spending
indicates weak profits for banks," said Norihiro Fujito, senior
investment strategist at Mitsubishi UFJ Morgan Stanley
Securities.
    The Topix shed 0.6 percent to 1,245.23 in heavy
trade, with 5.14 billion shares changing hands, a far larger
than last month's average daily 4.31 billion shares.
      
    LONGER TERM PICTURE INTACT
    The short-term pullback has been widely expected. But in the
longer term market analysts expect further rises in the Japanese
market.    
    U.S. star bond investor Jeffrey Gundlach, who heads
DoubleLine Capital LP, said on Wednesday that the benchmark
Nikkei will hit 17,000 before year-end. 
    Nomura Securities, which said that Japanese equities have
become more sensitive to exchange rates once the dollar broke
above 100 yen last week, predicted the Nikkei could reach 16,000
if the dollar steadily heads toward 105 yen.
    The index has gained about 45 percent this year helped by
Prime Minister Shinzo Abe's bold monetary easing and
expansionary policies.
    On the back of strong jobs data in the United States and the
dollar trading above the 100-yen mark, the Nikkei had already
broke above 15,000, the level investors once had expected to see
around mid-June.
    The yen dropped to 102.76 yen against the dollar on
Wednesday, its lowest level since October 2008. The Japanese
currency last traded at 102.39 to the dollar.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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