May 27, 2013 / 3:00 AM / 4 years ago

Nikkei tumbles as exporters hit, market on edge after last week's tumult

4 Min Read

* JPMorgan forecasts Topix to rise to 1,400 over next 6-9
months
    * Investors wary after last week's volatility
    * Yen-rebound hurts exporters
    * Market jittery over Fed policy outlook - analysts

    By Ayai Tomisawa
    TOKYO, May 27 (Reuters) - Japan's Nikkei share average
slumped 3.1 percent on Monday morning, as a rebound in the yen
hammered exporters in a market still on edge after last week's
turbulent trade sent the benchmark reeling to its worst loss in
two years.
     The Nikkei dropped 455.11 points to 14,157.34 at
the midday break, with support pegged at 13,981.52, an intraday
low hit on Friday's choppy session. It dropped as low as
14,027.42 earlier.
    A combination of factors, including worries the U.S. Federal
Reserve will rollback its stimulus this year and weak factory
activity data from China, Japan's second-biggest export market,
triggered last week's selloff.
    The Nikkei dropped 7.3 percent on Thursday, its largest
single-day loss since the March 2011 earthquake and tsunami.  
    The sour mood continued to weigh on the market in early
trade, with S&P 500's decline for a third day on Friday and a
rebound in the yen further undermining sentiment. 
    "Negative sentiment is still lingering from worries on the
Fed's exit strategy," said Norihiro Fujito, a senior investment
strategist at Mitsubishi UFJ Morgan Stanley Securities.
    "Macro hedge funds, who bought Topix and Nikkei futures,
sold them last week and they are still selling them."
    Exporters lost ground, with Toyota Motor Corp 
declining 3.4 percent while Sony Corp shed 4.5 percent.
    Securities firms also fell in sympathy with the weak market,
 with Nomura Holdings dropping 2.7 percent and Daiwa
Securities falling 2.8 percent 
    Analysts said that last week's turbulence was partly
exacerbated by high frequency trading by hedge funds such as
commodity trading advisors and retail investors engaging in
margin trade. As a result, investors are likely to remain wary
about further volatility, they said.
   The broader Topix dropped 2.5 percent to 1,163.91.
   The Nikkei has gained 36 percent this year and is up 15
percent since April 4, when the Bank Of Japan announced a
sweeping monetary expansion campaign to vanquish years of
deflation and revive growth.
    Market players said those who were buying stocks and selling
the yen reversed their positions when the yield on the 10-year
cash bonds rose as high as one percent on
Thursday.
    "Last week's shock will probably last throughout this week,"
said Kenichi Hirano, a strategist at Tachibana Securities. "But
the Japanese market's fundamentals in the mid-to-long term have
not changed, so there still is upside in the longer term."
    
    OUTLOOK BULLISH LONG-TERM
    As the weaker yen has improved the outlook for many
exporters given it makes their products more competitive in
offshore markets, analysts expect an average operating profit
rise of 30 percent, compared with the companies' conservative
forecasts of around a 20 percent increase in operating profits. 
    Many exporters have used assumptions of around 90-95 yen to
the dollar, while the U.S. currency last traded at 101.01 yen.
    Heightened risk-aversion saw the dollar post its worst week
against the yen in a year on Friday but it is still well above
what most companies were expecting.
    "We stay structurally bullish Japanese risk assets and
continue to forecast Topix to rise to 1,400 over the next six to
nine months," Jesper Koll, head of Japanese equity research at
JPMorgan, wrote in a report, adding that last week's pullback 
was a healthy correction.
    He said that foreigners have remained net buyers, while
local institutional investors and retail investors have been 
consistent sellers over the past several weeks.
    "This has not changed since the start of the new fiscal year
April 1. No doubt, the fact that locals are still not buying has
made it easier for foreign 'fast money' to trigger profit
taking."

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