Nikkei edges up as strong earnings offset weak industrial output

Tue Jul 29, 2014 10:13pm EDT

* Macro funds shift to Japan shares - analyst
    * Earnings impress investors - analysts

    By Ayai Tomisawa
    TOKYO, July 30 (Reuters) - Japan's Nikkei share average
edged up to hover at six-month highs in choppy trade on
Wednesday morning, as strong corporate earnings led by Honda
Motor Co and Tokyo Electron Ltd eclipsed data
showing weak industrial output.
    The Nikkei tacked on 0.2 percent to 15,643.55 in
midmorning trade after moving in and out of negative territory.
On Tuesday, the index rose 0.6 percent and has been maintaining
at levels last seen in the middle of January.
    Japan's June industrial output fell at the fastest rate
since the devastating earthquake and tsunami in March 2011 as
companies slowed production to offset a build-up in inventories,
official data showed on Wednesday. 
    The weak data was somewhat offset by strong corporate
earnings, which bode well for the economy as it steers through
temporary dips caused by a national sales tax hike and the
fading effects of Tokyo's stimulus measures. 
    Honda jumped 3.6 percent and was the most traded stock by
turnover after reporting a 7.1 percent rise in operating profit,
 beating analyst estimates and lifting its full-year profit
forecast to 770 billion yen from 760 billion.
    Tokyo Electron, which raised its April-September operating
profit forecast to 24.5 billion yen from 18.0 billion yen,
soared 2.7 percent.
    "Macro funds including overseas pension funds are shifting
to Japanese shares from U.S. shares as valuations of Japanese
shares are cheaper," said Kyoya Okazawa, head of global equities
at BNP Paribas.
    On top of that, investors are optimistic that Japanese
companies are riding out the impact of the April 1 national
sales tax hike, he said.
    Approximately 25 percent of Topix companies have reported
quarterly results, and sales are up 7 percent on year and net
income 11 percent higher, according to JPMorgan.
    "We believe expectations have been relatively muted heading
into the first-quarter results due to the tax hike," Patrick
Rial, an analyst at JPMorgan, wrote in a report. 
    He said that solid earnings have helped the Topix add 1.3
percent since the July 17 start of quarterly results, while the
S&P 500 is unchanged over the same period.
    Exporters were mixed, with Toyota Motor Corp 
falling 0.2 percent, Canon Inc shedding 0.4 percent and
Panasonic Corp gaining 0.4 percent.
    The broader Topix was flat at 1,290.78, and the
JPX-Nikkei Index 400 was also unchanged at
11,755.91.

 (Editing by Shri Navaratnam)