Nikkei falls on U.S. economic data, strong yen

08:04, May 31, 2011      

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Tokyo stocks fell Monday, with the key Nikkei stock index losing 0.18 percent as a firmer yen prompted the selling of large-cap exporters and investors hit the sidelines ahead of key economic data due out from the U.S. and Japan this week.

As trading volume fell to the lowest this year at 1.38 billion shares, brokers said that the market mood was lackluster due to the strength of the yen and among a lack of external cues due to markets in both the U.S. and the U.K. being closed for national holidays.

Market players said that concern was growing about the pace of the economic recovery in the U.S., with economists predicting data this week will show that hiring slowed May and factory output declined.

On May 27, a government data showed that the purchasing of homes in April fell more than expected, adding to fears the pace of recovery in the world's largest economy may be cooling.

"On top of pessimism about the U.S. economic recovery, the strong yen is a concern for Japanese shares," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

The yen rose as high as 80.72 against the U.S. dollar, from 81. 07 at the close of trading in Tokyo last Friday.

A strong yen eats into exporters' profits made abroad when the funds are repatriated and Japanese goods and services become less competitive in overseas markets.

The 225-issue Nikkei Stock Average lost 16.97 points from Friday to 9,504.97, the broader Topix index of all First Section issues on the Tokyo Stock Exchange fell 1.22 points, or 0.15 percent, to finish at 823.68.

Coupled with a lack of fresh incentives and a persistently strong yen, some analysts also pointed to political turbulence in Japan as unsettling the market mood.

The March 11 disasters largely muted news of an increasingly fractious government that prior to the quake and tsunami was on the brink of collapsing with calls for the Prime Minister Naoto Kan to step down from within his own and opposition parties and call a snap election.

"The market lacks energy, lacks buying cues, and faces many uncertainties," said Hiroichi Nishi, equity division manager at SMBC Nikko Securities Inc.

"There are worries about political instability on the domestic front as opposition parties may submit a no-confidence motion" against the Cabinet of Prime Minister Naoto Kan, he said.

Political insecurity added to investors' reluctance to buy shares and exporters came under pressure from the yen's firmness against its major counterparts.

Sony Corp. fell 2.1 percent to 2,122 yen, as consumer faith in the electronics giant has been severely dented following a series of security breaches concerning its online gaming business.

Advantest relinquished 1.1 percent to 1,489 yen and industrial robotics maker Fanuc shed 0.7 percent to 12,270 yen.

Honda Motor declined 1.3 percent to 3,030 yen, following the automaker announcing a data breach in Canada as well as a report in the Nikkei on Saturday saying the firm has reversed its decision to carry out additional share buybacks.

"The move itself is not that surprising, but it may reflect the tough conditions that the company is in if it reached such a decision at this early timing," said Naoki Fujiwara, a fund manager at Shinkin Asset Management, adding that selling would likely only be temporary.

Toyota, meanwhile, the world's largest automaker, declined 0.2 percent to close at 3,330 yen.

Some shares bucked the downward trend on individual news however, with Sumitomo Realty & Development gaining 1.2 percent to 1,710 yen, following Barclays Capital raising its rating on the firm's stock to "overweight" from "equal-weight" and upping its target price on the stock saying the firm would likely trump its counterparts when its comes to post-quake business recovery.

Trading volume on Monday dropped to 1.38 billion shares on the Tokyo Exchange's First Section, falling from Friday's volume of 1. 61 billion shares, with advancing issues outnumbering declining ones by 849 to 605.

Source: Xinhua
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