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Yen’s fall heaven-sent for Tokyo stock prices

Credit-easing measures, U.S. recovery driving strong TSE rally

by Megumi Iizuka

Kyodo

Tokyo stocks have surged to multiyear highs on the back of the yen’s tumble, brought on by the Bank of Japan’s powerful credit easing measures and hopes of a sustainable recovery in the U.S.

Analysts believe the stock rally will continue over the long term, though there may be some valleys in the short run. Meanwhile, there needs to be a tangible economic recovery supported by rises in wages and personal spending to maintain momentum.

As of Friday, the dollar had climbed above the ¥101 line, significantly up from the lower ¥92 range logged just a little more than a month ago.

In tandem with the yen’s slide, the Nikkei 225 has soared above the 14,600 mark, the highest closing level since January 2008, adding more than 2,600 points — nearly 22 percent — since April 2, two days before the BOJ unveiled unprecedented monetary easing measures.

The Tokyo Stock Exchange gained fresh momentum as the falling yen has resulted in upbeat corporate earnings projections, especially among export-oriented companies like Toyota, which set the dollar’s assumed exchange rate at ¥90 for this business year through next March 2014.

“Now the 15,000 mark is coming into our sights,” said Hiroaki Hiwada, a strategist at Toyo Securities Co., adding that sharp upward revisions in automakers’ earnings can be expected as they are setting modest assumed exchange rates.

In mid-April, a slew of weaker than expected U.S. economic data weighed on the dollar, but it later accelerated its upswing to hit the ¥100 line after the release of better than expected U.S. nonfarm payrolls figure for April, as well as weekly jobless claims for the first week of May, which fell to their lowest level since January 2008.

Analysts say investor sentiment has generally been lifted as uncertainties over the global economy are receding given that the U.S. economy is believed to be on a moderate recovery track.

Driven in part by the economic and monetary policies advocated by Prime Minister Shinzo Abe, known as “Abenomics,” many analysts predict the Nikkei could test 15,000 or 16,000 by around July, with the possibility of climbing above 16,000 or even reaching 18,000 by the end of the year.

“Confidence over Abenomics is mounting as monetary policy, fiscal policy and growth strategy are coming into full operation,” said Tsutomu Yamada, a market analyst at kabu.com Securities Co., noting the policies have created a buoyant mood in Japan.

Investors are now keeping close tabs on the growth strategy, one of the three pillars of Abe’s plan to be mapped out around June, which is expected to include creation of special economic zones and corporate income tax cuts as well as other measures for such sectors as energy and agriculture.

However, some analysts say the pace of the stock rally may slow for the remainder of May amid a sense of overheating and the yen is unlikely to fall further.

“I do not think the yen’s slide will accelerate once it has touched the ¥100 mark as interest rate differentials (between countries) are unlikely to widen due to loose monetary policies in major economies around the world,” said Toshikazu Horiuchi, an equity strategist at IwaiCosmo Securities Co.

Brokers say that if the yen weakens further, it may generate adverse effects such as higher import costs, eventually casting a pall over the economy.

Horiuchi added the key to testing higher ground will be “whether business performances among exporters will pick up not just by relying on the yen’s slide and whether that will lead to an increase in bonuses and consumer spending.”

Several events in the coming months could determine market trends, such as the Upper House election in July and a final decision in the fall on whether the consumption tax will be hiked as planned next April, brokers said.

Also, the TSE isn’t free from international risks. Uncertainties still remain over the European and Chinese economies.

The Nikkei has surged more than 68 percent, or nearly 6,000 points, since mid-November, when the Lower House was dissolved for the December election that brought Abe’s Liberal Democratic Party back to power.

It has gained more than 40 percent this calender year, outperforming rises in other bourses.