Nikkei surges 2.34% on forex intervention

22:38, September 15, 2010      

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Tokyo stocks rebounded sharply Wednesday, with the key Nikkei stock index climbing 2.34 percent to a one-month closing high after Japan intervened in the foreign exchange market for the first time since 2004 to halt the yen's relentless gains which have hampered the nation's export-led recovery.

With the yen's appreciation to 15-year highs against the U.S. dollar recently, Japanese issues have become an unattractive proposition for investors, brokers said and following Japan's central bank's stepping into the market to sell yen and buy dollars shortly after 10:30 a.m. in Tokyo the yen retreated against the U.S. dollar in whiplash fashion.

"The Japanese economy depends heavily on what it earns from exports overseas, so the intervention came at a good time and had an impact after a string of verbal threats," said one local fund manager.

"Corporate performance hasn't been bad but the dollar hovering near 80 yen had made shares unattractive. The authorities were able to put their foot down in the markets, and the next question is can they follow through with steps to help the economy," he added.

Analysts noted that exporter stocks, which are particularly sensitive to currency swings, became immediate beneficiaries of the move, which on the back of Prime Minister Naoto Kan's success in defending his position as the ruling party's leader the day before, took the market by surprise.

Economists expected Kan's reaction to the yen's recent rise not to come straight on the heals of his election win, as he was believed to be more tolerant of a stronger yen and analysts predicted he would continue to try to "talk the yen down" rather than take such proactive measures.

"Stocks had been moving in parallel with the dollar-yen earlier, and the intervention was a positive surprise for stocks," said Tsuyoshi Segawa, equity strategist at Mizuho Securities Co.

"The thinking was that there wouldn't be currency intervention and public spending would be small after the election, so disappointment had prevailed in the market," Segawa said.

The 225-issue Nikkei Stock Average advanced 217.25 points from Tuesday to 9,516.56, the highest closing level since Aug. 10, while the broader Topix index of all First Section issues on the Tokyo Stock Exchange rose 13.77 points, or 1.65 percent, to 848.64.

The yen hit its highest level against the U.S. dollar following Kan's victory against party rival Ichiro Ozawa at 83 yen per dollar, as Ozawa had been a firm proponent of intervention to curb the yen's ascent.

However, following the government's actions, the yen plummeted to 85.14 per dollar Wednesday afternoon from a 15-year high of 82. 88 before the intervention. The yen also retreated to 110.43 against the euro today from 107.58 at the bell Tuesday.

Kan had come under intense pressure from business leaders to make bold moves to halt the yen's rise and Finance Minister Yoshihiko Noda Tuesday alluded to further intervention into the currency market if deemed necessary.

"We have conducted an intervention in order to suppress excessive fluctuations in the currency market," said Noda.

"We will closely monitor currency developments, and take firm action including intervention," Noda said, adding that the move by Japan was unilateral.

Some analysts questioned the government's willingness to repeat the move and questions have also been asked as to whether a weaker yen could be sustained and if the move, being a unilateral one, was the right call.

"The focus is on whether there will be more to come, not just one intervention," said Masayoshi Okamoto, equity strategist at Jujiya Securities Co.

"The important thing is showing their willingness to do it or not," Okamoto said, adding that whether the Nikkei can rise decisively above 9,500 will be the key in the short-term.

Nevertheless, export-related and high-tech issues rose broadly with Sony Corp. climbing 4.1 percent to 2,596 yen and Advantest Corp. gaining 3.1 percent to 1,701 yen.

Nikon Corp. leapt 4.5 percent to 1,473 yen and Olympus Corp. climbed 3.7 percent to 2,254 yen. Canon Inc rose 1.9 percent to 3, 835 yen, despite having its credit rating cut by JPMorgan Chase & Co.

Automakers found favor with Toyota accelerating 3.8 percent to 3,010 yen and Honda Motor Co. advancing 4 percent to 2,944 yen. Nissan Motor Co. gained 3.7 percent to 702 yen.

Leopalace21 Corp. was a black spot on the market, however, as the real-estate company sank 3.3 percent to 148 yen.

The company said the amount of orders received for apartment construction totaled 4.59 billion yen (54.08 million U.S. dollars) in August, lower than 14.8 billion yen (174.40 million U.S. dollars) a year ago.

Some 2.35 billion shares changed hands on the Tokyo Exchange's First Section, distinctly higher than Tuesday's volume of 1.54 billion shares, with advancing issues outnumbering declining ones by 1,180 to 334.

Source: Xinhua


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