By Yuka Yamamori
Tokyo, Aug. 18 (Jiji Press)–The Japanese stock market looks set to enter a new stage of uptrend, with the key Nikkei average closing above the 10,000 threshold on the Tokyo Stock Exchange on Monday for the first time since Aug. 26, 2002.
Analysts broadly agree that the market is at the doorway to renewed growth, following about a month of correction after the key market gauge’s 31 pct rally from a postbubble low near 7,600 in late April to a high just below 10,000 in early July.
While foreign investors remain the largest driver behind the Nikkei’s growth, a big difference this time is that expectations of an economic recovery in Japan fueled their active buying, in contrast to the previous rally, which was led largely by their short- term trading in line with U.S. stocks’ growth.
“In the latest rally, long-term funds from nonresidents such as pension funds flowed into Japan, together with money from short- term players like hedge funds,” said Hiroaki Kuramochi, head of the global equities division at Credit Lyonnais Securities (Japan).
The market moved to positive views on Japanese economic fundamentals following recent releases of solid Japanese economic indicators, notably stronger-than-expected gross domestic product data for April-June, which showed a 0.6 pct increase from the previous quarter, and strong machinery orders in June.
Reflecting the bigger contribution to the GDP of domestic demand, as well as a series of upward revisions to corporate earnings estimates, investors actively snapped up cyclicals among low-priced domestic demand-oriented issues such as steelmakers, paper-pulp manufacturers and machinery makers, helping to bolster the Nikkei, brokers said.
Such active purchases, as reflected in unusually high trading volumes for Japan’s summer vacation season, effectively offset downward pressure from the unwinding of cross shareholdings and company pension funds’ moves to cash in assets under proxy management for their return to the government this autumn, brokers said.
While the market was largely underpinned by a bullish undertone, however, some players pointed to the need for additional incentives for a further advance of the Nikkei.
Credit Lyonnais’ Kuramochi said, “Additional policy measures are necessary for the Nikkei to reach 12,000 by the end of the year.”
Echoing this view, Toshihiko Matsuno, deputy equity general manager at SMBC Friend Securities Co., said uncertainties about Japan’s political situation could become a risk factor in the run- up to the leadership ballot of the ruling Liberal Democratic Party and a possible dissolution of the House of Representatives for a snap election.
“This is not a situation to celebrate the Nikkei’s finish above 10,000, as foreigners are particularly susceptive to political factors in deciding their investments,” Matsuno said. “They could easily close their positions if the political situation becomes unclear.”
Matsuno pointed to concern in the market that the LDP may lose the general election expected this autumn to a political grouping to be created by the Democratic Party of Japan and the Liberal Party.
