* Relief on Cyprus erases much of Friday drop
* Topix adds 0.8 pct, volume relatively thin
* Exporters have ability to rise further - traders
By Ayai Tomisawa
TOKYO, March 25 Japan's Nikkei share average
rose 1.7 percent on Monday, recovering most of its decline late
last week, as Cyprus and the European Union agreed to a plan to
deal with the island's financial crisis.
The Nikkei rose 207.93 points to 12,546.46. Last
Thursday, the index hit a 4 1/2-year high of 12,650.26, but on
Friday it dropped 2.4 percent.
An EU spokesman said Cyprus and international lenders
reached a deal for a 10 billion euro ($13 billion) bailout that
would shut down its second-largest bank and inflict heavy losses
on uninsured depositors. The agreement came hours before a
deadline to avert a collapse of the island's banking system.
"Investors know that European debt issues are not something
the market expects to be resolved soon. But they were relieved
that the rescue plan on Cyprus erased an imminent fear," said
Hajime Nakajima, deputy general manager at Iwai Cosmo
Exporters with high exposure to Europe outperformed, with
Sony Corp gaining 3.1 percent and being the most traded
stock by turnover, while Nikon Corp rose 1.8 percent
and Ricoh Co added 2.2 percent.
Other exporters were also in demand, with Toyota Motor Corp
up 0.8 percent and TDK Corp climbing 1.9
Consumer financing companies and banks also were strong.
Aiful Corp and Orient Corp jumped 12 percent
and 8.9 percent, respectively, and Mitsubishi UFJ Financial
Group advanced 1.6 percent.
The broader Topix gained 0.8 percent on Monday to
1,047.29 in relatively thin volume, with 2.70 billion shares
changing hands. Last week's average daily volume was 3.06
INVESTORS WILL LIKELY REVISIT EXPORTERS
Exporters have led the Japanese markets' gains since
mid-November, when the yen started weakening on Shinzo Abe's
attempt to pull the country out of persistent deflation and
bolster growth through bold monetary easing.
However, since January, exporters have underperformed
domestic-sensitive stocks such as banks as investors started to
realize that exporters were becoming expensive, traders said.
The auto sector has added 22.5 percent this year,
the banking sector 28.5 percent and the real estate
sector 30 percent.
"In the past few months, there were challenges for exporters
to rise further due to concerns about the pace of a recovery in
the global economy, so investors' interests have shifted to
domestic-demand sensitive stocks," said Masayuki Kubota, a
senior fund manager at Daiwa SB Investments. "But when
exporters' earnings estimates for the next fiscal year become
clearer (in May), investors are likely to buy them again."
The Nikkei's gain of about 45 percent since mid-November has
lifted the valuations of Japanese equities. According to Thomson
Reuters Datastream, stocks now have an average 12-month forward
price-to-earnings ratio of 14.1, a level not seen since August
2010. But they are still below their 10-year average, calculated
by Datastream at 16.3 times.
"Fundamentals still look good for Japanese equities. The
improving economy will help company earnings. We are looking for
further upside from here," said Hidehiro Tomioka, head of equity
investment at Manulife Asset Management in Tokyo.
Tomioka said he favoured financials, which benefit from
Abe's push to reflate the economy, and exporters, which will get
lifted by a softer yen.
"I prefer the autos rather than electronics because earnings
growth is more stable and stronger for the auto companies. Tech
companies are not as strong, especially if you look at the
competition," he said.
Boosted by yen weakness and improving sentiment, more than
half of Japanese companies expect rising profit in the business
year starting April 1, a Reuters poll showed on Friday, but
investors looking to gain from the fattened coffers may be
dismayed as firms keep the cash in-house.
Data from Datastream showed Japanese companies' outlook on
earnings improved further this month.
Their one-month earnings momentum - analysts' earnings
upgrades minus downgrades as a total of estimates - rose to 8.7
percent in March from 8 percent last month. It was minus 10.9
percent in November.