May 16, 2013 / 1:30 AM / 4 years ago

Nikkei dragged by weak capital spending data, Olympus soars

* Banks drop on weak forecasts, poor capex data
    * Healthy correction after steep rises in Nikkei - analyst
    * Market remains choppy, seen hovering around 15,000 -
traders

    By Tomo Uetake
    TOKYO, May 16 (Reuters) - Japan's Nikkei stock average eased
on Thursday morning as banks weighed after offering poor
earnings guidance, while investors wasted little time pocketing
recent gains amid some caution over recent market momentum.
    The market was also dented by weak capital spending by
companies for the first three months through March.
    Official figures published on Thursday morning showed
Japan's economy grew at a faster-than-expected 0.9 percent in
January-March from the previous quarter, but capital investment 
dropped 0.7 percent - inverting the market's expected 0.7
percent rise. 
    The benchmark Nikkei dropped 1.1 percent to
14,932.95 by the midday break, after rising as high as
15,155.72, levels last visited in January 2008.
     "It's just a healthy correction after such steep rises in
Nikkei. The stocks had moved a little too fast," said Ryota
Sakagami, chief equity strategist at SMBC Nikko Securities.
    "But it's difficult to predict how long the correction phase
will last. There are very few investors who are pessimistic on
the Japanese stocks in the medium to long term." 
    Traders said the market will likely remain choppy on
Thursday, hovering around the 15,000-mark back and forth all
day.
    Bucking the trend, Olympus Corp soared 13.3 percent
after the camera and endoscope maker forecast a 274 percent rise
in net profit at 30 billion yen ($293 million) for the current
business year through March, citing strong medical business and
a weaker yen. 
    JPMorgan raised its rating to "overweight" from "neutral"
and hiked its target price by 50 percent to 3,600 yen, noting:
"Olympus's plan to turn the image systems business profitable
seems realistic."
    Japan's top three banks, however, forecast weaker annual
earnings on Wednesday as aggressive monetary easing squeezes
them out of a profitable government bond trade. 
    Mitsubishi UFJ Financial Group dropped 2.9 percent,
Mizuho Financial Group shed 2.7 percent and Sumitomo
Mitsui Financial Group fell 2.4 percent.
    Market observers said that the central bank's plan to
purchase 70 percent of Japanese government bonds, part of its
aggressive monetary easing, should be negative for banks'
profits.
    "If banks have strong lending businesses that can make up
for the damage on JGB trading gains, there should be no problem.
But company managements' risk-averse stance on capital spending
indicates weak profits for banks," said Norihiro Fujito, senior
investment strategist at Mitsubishi UFJ Morgan Stanley
Securities.
    The broader Topix dropped 1.5 percent to 1,234.66.  
  
    LONGER TERM PICTURE INTACT
    The short-term pullback has been widely expected. But in the
longer term market analysts expect further rises in the Japanese
market.    
    U.S. star bond investor Jeffrey Gundlach, who heads
DoubleLine Capital LP, said on Wednesday that the benchmark
Nikkei will hit 17,000 before year-end. 
    The index has gained 44 percent this year helped by Prime
Minister Shinzo Abe's bold monetary easing and expansionary
policies.
    On the back of strong jobs data in the United States and the
dollar punching through the 100-yen mark early this month, the
Nikkei broke above 15,000, the level investors once had expected
to see around mid-June.
    The yen dropped to 102.76 yen against the dollar on
Wednesday, its lowest level since October 2008. The Japanese
currency last traded at 102.14 to the dollar.

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