Nikkei reverses losses on weak yen, improving China money market conditions

Mon Jun 24, 2013 11:22pm EDT

* Weak yen lifts exporters
    * Some relief in stressed China money markets also help
    * China-related stocks underperform
    * Fed tapering still pressuring market - analyst

    By Ayai Tomisawa
    TOKYO, June 25 (Reuters) - Japan's Nikkei share average rose
in choppy trade on Tuesday morning, erasing earlier losses as
the weak yen offset lingering worries about stress in China's
banking system and the U.S. Federal Reserve's plans to roll back
its stimulus later this year.  
    The Nikkei advanced 0.7 percent to 13,147.14 by the
midday break after dipping below the 13,000 mark earlier.
    Analysts say investors bought back exporters as the dollar
rose above 98 yen, while they also took comfort from an easing
in tight liquidity conditions in China's money markets.
    A recent spike in interbank borrowing costs have raised
fears that stress in China's banking system could weigh on
already slowing growth, roiling global markets already grappling
with the Fed's plan to scale back its stimulus. 
    "Investors are still cautious against Asian share moves, but
they have confidence about Japanese stocks and U.S. stocks as
they shift to industrialized markets from emerging markets,"
said Shun Maruyama, chief Japan equity strategist at BNP
Paribas. He expects Japanese equities to outperform regional
peers that have been hit hard by the ongoing China worries.
     The Shanghai Composite Index was down 0.9 percent
after diving 5.2 percent on the previous day, while the Hang
Seng Index rose 0.6 percent after falling 2.2 percent.
    Exporters underpinned the Nikkei as the dollar rose as high
as 98.05 during Asian trade, with Sony Corp rising 1.1
percent, Canon Inc adding 0.6 percent while Honda Motor
Co tacked on 0.7 percent.
    Manufacturers with high exposures to China remained under
pressure, with Komatsu Ltd falling 1.5 percent and
Nissan Motor Co dropping 0.3 percent.
    The benchmark Nikkei has dropped around 18 percent since
reaching a 5-1/2-year high on May 23, hurt by slowing growth in
China, Fed stimulus concerns and disappointment over the
Japanese government's recently unveiled growth strategy.
    The index is still up 26 percent this year helped by Prime
Minister Shinzo Abe's sweeping fiscal and monetary expansionary
policies aimed at pulling the world's third-biggest economy out
of a two-decade long slump.
    "There are few negative factors in the domestic market, but 
global worries are keeping investors from taking positions,"
Kenichi Hirano, a strategist at Tachibana Securities said.
    Still, the "Abenomics' effect, especially monetary easing,
is still continuing, and Japanese shares should continue
outperforming its global peers," he added. 
    The Topix gained 0.1 percent to 1,090.52.
    Analysts expect that Japanese market to remain resilient as
long as the dollar trades higher than the 90-95 yen range on
which most companies have based their earnings for this fiscal
year. A weaker yen lifts exporters' competitiveness in overseas
markets and their earnings when repatriated.
    They added that the market may encounter resistance around
13,300 in the near term on lingering concerns that U.S. monetary
stimulus will be scaled back in the near term. The Federal
Reserve last week confirmed plans to reduce the amount of cheap
money being pumped into the U.S. economy later this year,
sending global risk assets skidding sharply.
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