Nikkei hits one-month closing high as yuan rises
Tuesday, 22 June 2010
TOKYO, June 21 (Reuters): Japan's Nikkei average powered to a one-month closing high Monday, breaking both a chart retracement and key resistance level on a sense that the rise in China's yuan was a vote of confidence in the global economic recovery's staying power.
China's Saturday announcement that it would make the yuan more flexible suggested it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism. Its central bank Monday kept the yuan's mid-point unchanged from Friday but the spot exchange rate strengthened to a 21-month high.
Buying was active and broad-based, with shares in Komatsu Ltd and rival Hitachi Construction Machinery Co jumping, while trading houses gained on higher metals prices and exporters rose on hopes the move will increase Chinese buying power.
The Nikkei climbed above a 38.2-per cent retracement around 10,155 of the fall from its April high of 11,408.17 to its June low of 9,378.23 and also broke above resistance at 10,200, a bit below the level of its 50-week moving average.
"First, the sharply stronger yen that some investors feared would result from this hasn't materialised," said Takashi Ushio, head of the investment strategy division at Marusan Securities.
"But even more than this, the move suggests sustainable economic growth for China, which is boosting shares pretty much across the board."
The benchmark Nikkei rose 2.4 per cent or 242.99 points to 10,238.01, extending rises that last week saw it post a three-per cent gain on the week -- its biggest weekly gain in three months -- and marking its highest close since May 18.
The broader Topix rose two per cent to 902.49.
The Nikkei now faces resistance around its 200-day moving average near 10,300 and then a 50 per cent retracement just under 10,400 of its April-June move.
"China's move has a number of pluses for Japan. It boosts confidence in sustainable growth, which then suggests greater buying power for Chinese people and benefits for Japanese manufacturers," said Toshiyuki Kanayama, an analyst at Monex Inc.
But others thought the rebound was fragile, noting that volume was relatively thin and that Monday's gains had been made up mostly of short-covering.
"There's definitely rising expectations for sustainable Chinese economic growth, but the market could still be vulnerable to any bad news," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities, citing the potential for further problems with the euro zone's debt woes and political uncertainty ahead of a July 11 election.
Construction machinery makers Hitachi Construction and Komatsu both climbed as they would benefit from a stronger yuan as they assemble and sell their products in China after importing major parts from Japan.
Hitachi Construction, which has more exposure to China, surged 6.7 per cent to 1,873 yen, while Komatsu climbed 4.6 per cent to 1,782 yen.
Trading houses powered higher on surging base metals prices, with Shanghai copper jumping by its five per cent limit and other metals also rising sharply.
Mitsubishi Corp climbed 6.6 per cent to 2,033 yen and Mitsui & Co gained 5.9 per cent to 1,210 yen.
Honda Motor Co climbed 3.7 per cent to 2,790 yen, chip tester maker Advantest gained 5.1 per cent to 2,099 yen and Canon Inc rose 2.8 per cent to 3,885 yen.
Shares of Teijin Ltd jumped 4.8 per cent to 282 yen after the Nikkei newspaper said it had developed a new carbon fiber material for automobiles that can be quickly shaped and processed, and could be used in the curved section of a car's body.
China's Saturday announcement that it would make the yuan more flexible suggested it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism. Its central bank Monday kept the yuan's mid-point unchanged from Friday but the spot exchange rate strengthened to a 21-month high.
Buying was active and broad-based, with shares in Komatsu Ltd and rival Hitachi Construction Machinery Co jumping, while trading houses gained on higher metals prices and exporters rose on hopes the move will increase Chinese buying power.
The Nikkei climbed above a 38.2-per cent retracement around 10,155 of the fall from its April high of 11,408.17 to its June low of 9,378.23 and also broke above resistance at 10,200, a bit below the level of its 50-week moving average.
"First, the sharply stronger yen that some investors feared would result from this hasn't materialised," said Takashi Ushio, head of the investment strategy division at Marusan Securities.
"But even more than this, the move suggests sustainable economic growth for China, which is boosting shares pretty much across the board."
The benchmark Nikkei rose 2.4 per cent or 242.99 points to 10,238.01, extending rises that last week saw it post a three-per cent gain on the week -- its biggest weekly gain in three months -- and marking its highest close since May 18.
The broader Topix rose two per cent to 902.49.
The Nikkei now faces resistance around its 200-day moving average near 10,300 and then a 50 per cent retracement just under 10,400 of its April-June move.
"China's move has a number of pluses for Japan. It boosts confidence in sustainable growth, which then suggests greater buying power for Chinese people and benefits for Japanese manufacturers," said Toshiyuki Kanayama, an analyst at Monex Inc.
But others thought the rebound was fragile, noting that volume was relatively thin and that Monday's gains had been made up mostly of short-covering.
"There's definitely rising expectations for sustainable Chinese economic growth, but the market could still be vulnerable to any bad news," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities, citing the potential for further problems with the euro zone's debt woes and political uncertainty ahead of a July 11 election.
Construction machinery makers Hitachi Construction and Komatsu both climbed as they would benefit from a stronger yuan as they assemble and sell their products in China after importing major parts from Japan.
Hitachi Construction, which has more exposure to China, surged 6.7 per cent to 1,873 yen, while Komatsu climbed 4.6 per cent to 1,782 yen.
Trading houses powered higher on surging base metals prices, with Shanghai copper jumping by its five per cent limit and other metals also rising sharply.
Mitsubishi Corp climbed 6.6 per cent to 2,033 yen and Mitsui & Co gained 5.9 per cent to 1,210 yen.
Honda Motor Co climbed 3.7 per cent to 2,790 yen, chip tester maker Advantest gained 5.1 per cent to 2,099 yen and Canon Inc rose 2.8 per cent to 3,885 yen.
Shares of Teijin Ltd jumped 4.8 per cent to 282 yen after the Nikkei newspaper said it had developed a new carbon fiber material for automobiles that can be quickly shaped and processed, and could be used in the curved section of a car's body.