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Nikkei slips but bounces off bear territory; JGBs fall
June 7, 2013 / 9:11 AM / 4 years ago

Nikkei slips but bounces off bear territory; JGBs fall

* Nikkei slips 0.2 pct, Topix down 1.3 pct
    * Ten-year JGB yield reverse early fall
    * Yen posts biggest one-day rise vs dollar in three years
overnight

    By Dominic Lau and Ayai Tomisawa
    TOKYO, June 7 (Reuters) - Japan's Nikkei share average sank
into bear territory on Friday before recouping some of its
losses on expectations that the country's $1 trillion public
pension fund would ramp up its buying of equities.
    After the markets closed, the Government Pension Investment
Fund (GPIF) said that it would lift its weighting in foreign and
domestic stocks while cutting back its target allocation for
Japanese government bond.  
    The Nikkei ended 0.2 percent lower at 12,877.53
points on Friday, recovering from an earlier low of 12,548.20,
which marked a 21 percent slide from a 5-1/2 year peak hit on
May 23, leaving the index in bear market territory.
    Ahead of the announcement from the pension fund, the yen
trimmed gains against the dollar while the benchmark 10-year
Japanese government bonds reversed a rise.
    "A lot of people are speculating on that," a dealer at a
foreign bank said, referring to the announcement of the GPIF
briefing in the afternoon.
    "If you look at the sectors that are outperforming since the
(briefing) announcement, the banks are doing the best," he said,
adding that if the GPIF were to buy more stocks, banks were
likely to benefit as they have significant weighting in the
broader Topix index. 
    The banking sector pared a steep loss to end 0.5
percent lower.
    
    Japanese equities have tumbled over the past two weeks, with
trading characterised by violent price moves, as investors were
spooked by worries over slowing growth in China, and uncertainty
over whether the U.S. Federal Reserve would roll back its
stimulus this year.
    Investors have also been disappointed with Prime Minister
Shinzo Abe's growth strategy this week to revive the world's
third-largest economy.
    The sell-off has wiped off about $500 billion in market
capitalisation from the Nikkei, based on the benchmark's May 22
close.
    "Recent weakness in the market represents a little bit of a
disappointment for 'Abenomics'," said Kenji Shiomura, an analyst
at Daiwa Securities.
    "But it would be too extreme to say that hopes for Abenomics
have faded completely because the biggest impact Abenomics gave
the market was monetary easing, and it is still continuing," he
said.
    "We will need to see the outcome of the U.S. jobs data
(later on Friday), but now that most of bad domestic factors are
out, the timing to buy back Japanese stocks is nearing."
    The yen cut its gain against the dollar after advancing 1.9
percent overnight, marking its biggest one-day percentage rise
in three years as investors cut back their bullish bets on the
greenback on concerns that the U.S. jobs report will disappoint.
It was last traded at 96.565 to the U.S. currency.
    The yen had fallen nearly 30 percent against the dollar to a
4-1/2 year low of 103.74 on May 22 since mid-November, when Abe
promised expansionary fiscal and monetary policies to lift the
economy out of doldrums. 
    The yen's sharp decline and optimism over Abe's reflationary
policies had fuelled an 80 percent rally in the Nikkei since
late last year, leaving it vulnerable to profit-taking.  
    
    YEN STRENGTH WEIGHS
    Although the yen trimmed gains, currency-sensitive exporters
still ended the day lower, with Toyota Motor Corp,
Honda Motor Co, Toshiba Corp and Panasonic
Corp off between 2.8 and 3.9 percent.
    Tetsuro Ii, the chief executive of Commons Asset Management,
said he was bullish on Japanese equities because company
fundamentals were improving on the back of soft yen.
    "The recent rise in the yen is not that startling given what
companies are expecting this year," he said, adding that most
exporters have based their foreign exchange assumptions at 90 to
95 yen to the dollar for the financial year ending March 2014. 
    Despite the recent rout, the Nikkei is still up 4 percent
since the Bank of Japan's announcement of its radical monetary
expansion campaign on April 4 and has risen 24 percent so far
this year. 
    The broader Topix index lost 1.3 percent to 1,056.95
on Friday, with volume 10 percent above its full daily average
for the past 90 trading days.
    The Mothers index, comprised of small to mid-sized
firms which retail investors tend to focus, slumped 11.5
percent. It has lost 38 percent since hitting a six-year high on
May 8, but is still up 66 percent so far this year.
    
    TEN-YEAR JGB YIELDS RISE
    Benchmark 10-year JGBs reversed gains, with
the yield up 2.5 basis point to 0.860 percent after hitting a
one-week low of 0.80 percent.
    Ten-year JGB futures closed 0.09 point higher at
143.11 after hitting a four-week high of 143.52.
    "The Nikkei seems to be vulnerable ... but apart from that
we need to carefully assess the U.S. economic status," said Maki
Shimizu, senior JGB strategist at Citigroup in Tokyo.
    "Over the long-term, the Fed policy and U.S. Treasury yields
will have bigger impact on the markets in terms of setting the
direction."

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