December 14, 2012 / 1:40 AM / in 5 years

Nikkei edges down on profit-taking, tankan sours mood

* Index may hover at futures and options settlement price
    * BOJ tankan sours mood - trader
    * Charts indicate market is 'overbought' - analysts
    * Some correction may be seen after election -  trader

    By Ayai Tomisawa
    TOKYO, Dec 14 (Reuters) - Japan's Nikkei share average edged
down on Friday as investors adjusted their positions before
Sunday's election amid chart signals that the market is
'overbought', while poor corporate sentiment soured the mood.
    The Nikkei shed 0.4 percent to 9,707.41 after
closing at the highest level since April 5 on Thursday.
    Market players said the Nikkei was likely to hover around
9,720.36 for the day, the settlement price of Nikkei futures and
options contracts expiring in December.    
    The closely watched settlement price, known in Japan as the
special quotation, or "SQ", is calculated from the opening
prices of the 225 shares in the Nikkei average on the second
Friday of the month.
    Exporters, which were big gainers in the previous day,
dropped on profit-taking, with Honda Motor Co shedding
0.9 percent to 2,800 yen, Canon Inc falling 0.5 percent
to 3,125 yen and Panasonic Corp sliding 1.9 percent to
472 yen.
    Hiroichi Nishi, general manager at SMBC Nikko Securities,
said that some investors unwound their positions before Sunday's
election as technical signs suggested the market is overheated.
    Thursday's advance took the benchmark's 14-day relative
strength index to 71.48. Seventy or above is considered
    Also, the toraku ratio, or up-down ratio, used for the first
section of the Tokyo Stock Exchange, was at 123. The ratio is
calculated by dividing the 25-day moving average of stocks that
gained by the 25-day average of those that fell. A level above
120 signals an overheated market.
     Traders said sentiment is still positive due a weaker yen,
which boosts exporters' overseas earnings when repatriated. But
uncertainties, such as the U.S. 'fiscal cliff' talks, could
limit year-end gains.
    "After the election, we may see some correction as hopes for
monetary easing will be priced in completely (if the Liberal
Democratic Party wins a majority seat as expected)," said Naoki
Fujiwara, a fund manager at Shinkin Asset Management. "The
Nikkei may hit 9,800 but we still have concerns about the U.S.
fiscal cliff and the health of the U.S. economy."
    Investors are worried that a combination of U.S. government
spending cuts and tax rises due to begin in 2013 may tip the
economy back into recession if a deal is not reached in
    The mood was also soured by poor Japanese business sentiment
in a central bank tankan survey, which worsened for a second
straight quarter in the three months to December.
    "The impact from the tankan survey is minimal on the market
but it is not encouraging investors to chase the market higher
for now," Fujiwara said.
    On Thursday the yen hit an 8-1/2-month low of 83.67 yen to
the dollar as investors bet on bolder moves by the central bank
after Sunday's election on Sunday. 
    Shinzo Abe, the leader of the main opposition party which is
expected to win the election, has called for the bank to adopt
extreme policy action, including setting an inflation target of
2 percent and embarking on "unlimited easing". His comments have
weakened the yen over the past month and helped boost stocks.
    The Nikkei has rallied 12.2 percent over the past month,
taking its year-to-date gain to 14.9 percent, ahead of the
performance of its peers in the United States and Europe. 
    The U.S. S&P 500 has risen 12.9 percent so far this
year and the pan-European STOXX Europe 600 has gained
14.3 percent.
    The broader Topix index was flat at 799.00.

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