Japan Stocks Advance

on Jun 13, 2012

Japanese stocks gained after the country’s machinery orders proved to be more than anticipated and hopes of stability in the Euro Zone were boosted by news that the ECB backed a banking union proposal.

On 13 June 2012, Bloomberg reported that Japan’s stocks rose, reversing losses from the previous day, a result of the country’s machine orders increased more than economists had predicted. In addition, the European Central Bank (ECB) backed the European Commission’s proposal for an EU banking union, which also had a positive impact on the shares of some Japanese companies, particularly in the face of the uncertainty surrounding the upcoming Greek elections.

According to Bloomberg data, the Nikkei 225 Stock Average rose with 0.6 percent 8,587.84 at the 3 p.m. trading close in Tokyo, whereas the broader Asian Topix index rose with 0.3 percent to 726.44. As for individual companies, Bloomberg reports that Fanuc Corp.(6954:JP), Japan’s biggest maker of factory robotics, rose 0.4 percent and Hitachi Construction Machinery Co. (6305:JP)gained 0.2 percent. Mitsui High-Tech Inc.(6966:JP) had a more impressive performance, jumping 16 percent after its operating profit increased with more than 700 percent relative to the previous year.

!m[](/uploads/story/120/thumbs/pic_1_inline.png)Among the main reasons for the performance of the Japanese equities is that in April, machinery orders increased more than anticipated. More precisely, Japan’s machinery orders rose with 5.7 percent, whereas estimates were for a more modest 1.6 percent gain. The Financial Times also reported on 13 June 2012 that Nippon Steel rose 3.6 percent and Kobe Steel was up 2.2 percent, again on account of the Japanese government’s recently published data.

The other main factor determining the positive performance of Japanese stocks is the European Central Bank’s (ECB) support for the proposed EU banking union, expected to be discussed at the European Council summit at the end of June. The ECB’s announcement was beneficial mostly to European exporters such as Nikon Corp.(7731:JP) The company, which realises 23 percent of its sales in Europe, gained 2.3 percent. Konica Minolta Holdings Inc.(4902:JP), a maker of photo films with 28 percent of sales in Europe, rose with 0.5 percent.

Even though the banking union initiative is still at a proposal stage, it seems to have brought a certain degree of confidence amidst the fears of Greece quitting the euro. Bloomberg quotes Naoki Fujiwara, Tokyo-based chief fund manager at Shinkin Asset Management Co.(SHAZ), who noted that the market was “sandwiched between worries about the Greek election and hopes for policy response”.
The positive trend however is not limited to Japanese stocks but extends to other Asian equities as well, with Bloomberg reporting that the MSCI Asia Pacific Index advanced 0.4 percent, erasing losses of 0.2 percent. In addition to the rise in Japanese machinery orders, the other factors determining the positive performance of Asian stocks are the falling unemployment rate of South Korea, which reached a four-month low in May, and Chinese reports showing that the country’s exports and imports increased more than expected. South Korea’s Kospi index gained 0.3 percent, and the Chinese Shanghai Composite Index and Hong Kong’s Hang Seng Index rose with 1.3 and 0.8 percent respectively.
The good performance of Asian equities in general and the Japanese equities in particular is an indication that the region’s economies are managing to withstand Europe’s sovereign debt crisis.


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