* Automakers rally on growing expectation of monetary easing
* Honda jumps 6.2 pct, Toyota up 3.5 pct, Nissan rises 5.5
By Dominic Lau and Yoko Kubota
TOKYO, Dec 19 Hopes that Japan's central bank
would obey incoming prime minister Shinzo Abe's call to print
more money and weaken the yen sparked a sharp rally on Wednesday
among auto stocks, lifting Tokyo's market to its biggest gain in
over a year.
Honda Motor led the gains, rising 6 percent, while
Nissan Motor climbed 5.5 percent and Toyota Motor
rose 3.5 percent. The three stocks helped push the
benchmark Nikkei Stock Average up 2.4 percent to above
10,000 for the first time in almost nine months.
The Bank of Japan is likely to ease monetary policy at the
close of its policy-setting meeting this week and sources close
to the bank say it may also consider doubling its target for
inflation next month in response to increasing pressure from Abe
after his Liberal Democratic Party swept back into power with a
landslide victory in parliamentary elections last Sunday.
"There are expectations for the incoming Abe government,
monetary policy easing and a supplementary budget, which leads
to greater expectations for a weaker yen," said Koji Endo, an
auto analyst at Advanced Research.
"And now, it seems like the U.S. fiscal problems will be
sorted. A weaker yen and a steady U.S. economy are two biggest
positive factors for auto stocks."
Japan's auto exporters are particularly sensitive to
fluctuations in the yen, which rose to a record high of 75.311
yen to the dollar in October 2011. A stronger yen reduces what
car makers and their suppliers earn overseas and hurts their
ability to match competitors such as South Korea's Hyundai
Motors on price.
Since Abe called for the BOJ to undertake bolder steps
including "unlimited easing", the yen has fallen about 5
percent. That in turn has boosted the appeal of automakers'
The yen was quoted at 84.33 to the dollar on Wednesday but
still far from the 100 yen level around which Japanese carmakers
would like to see the Japanese currency trade.
Endo said with many Japanese electronic firms struggling,
investors were focused on auto stocks more than ever.
"Investors, especially foreign institutional investors are
starting to feel that they are in trouble if they don't have
Japanese stocks. Key institutional investors, excluding hedge
funds, have yet to catch up on the market, and they will start
buying," he said.
The transport equipment index has rallied 25.9
percent over the past five weeks, outpacing a 17.3 percent rise
in the benchmark Nikkei.
Signs of progress in negotiations to avoid spending cuts and
tax increases in the United States in the so-called fiscal cliff
also lifted sentiment in the Tokyo market. The United States is
one of the biggest markets for Japanese carmakers.
But some analysts said the weak yen might not be enough to
help the Japanese auto industry. Morgan Stanley MUFG downgraded
auto parts makers Aisin Seiki Co Ltd and Calsonic
Kansei Corp on Friday.
"A weak yen is positive, but we do not see industry earnings
growing while non-U.S. autos demand remains uncertain and costs
to offshore production rise," Morgan Stanley MUFG wrote in a
In terms of valuations, auto and parts makers carry a
12-month forward price-to-earnings ratio of 10.4, much cheaper
than the broader market's 12.6, according to Thomson Reuters
Of the Big Three, Nissan has the cheapest valuation, with
its 12-month forward P/E of 8.1 versus Honda's 10.5 and Toyota's
Taizo Ishida, lead portfolio manager of the Matthews Japan
Fund at Matthews International Capital Management in San
Francisco, had Toyota as his number four top holding as of Nov.
"This year, we made sort of a tactical change in the
beginning of the year, saying, the yen is too strong, this is a
problem, meaning we didn't have much in exporters, for example,
Toyota. We didn't have much in weak-yen, big-cap type of
companies," he told Reuters late last month.
"Toyota, the company came out of three, four years of
miserable problems," such as recalls, the March 2011 earthquake
and Thai floods, he said.
"I don't think I had Toyota for a long time, but the
fundamentals are definitely coming together."
(Additonal reporting by Lisa Twaronite; Editing by Sanjeev